← Search

Simultaneous Search and Adverse Selection

Sarah Auster¹; Piero Gottardi²; Ronald Wolthoff³

¹ Department of Economics, University of Bonn, Bonn , · ² Department of Economics, University of Essex, Colchester, United Kingdom and University of Venice, Venice , · ³ Department of Economics, University of Toronto , Toronto ,

Abstract We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents’ types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. We show that facilitating contacts can lead to a reduction in welfare. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof, including Pareto-dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations that have made meetings easier.

DOI

10.1093/restud/rdaf014

Volume

92 (6)

Pages

3541-3573

Language

en

Export

BibTeX

Sources

openalex crossref