Econometrica: Jan 1990, Volume 58, Issue 1

Information Revelation in a Market with Pairwise Meetings

https://doi.org/0012-9682(199001)58:1<1:IRIAMW>2.0.CO;2-3
p. 1-23

Asher Wolinsky

This paper presents a simple pairwise meetings model of trade. The new feature is that agents have asymmetric information about the true state of the world. The focus is on the transmission of the information through the process of trade. The qualitative question: to what extent is the information revealed to uninformed agents through the trading process, when the market is in some sense frictionless? In particular: does the decentralized process give rise to full revelation results as derived by the literature on rational expectations for centralized and competitive environments? In the context of the model of this paper, it turns out that the information is not fully revealed to uninformed agents, even when the market is in some sense approximately frictionless.

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