Markets with Multidimensional Private Information

55 Pages Posted: 27 Oct 2014 Last revised: 4 Apr 2015

See all articles by Veronica Guerrieri

Veronica Guerrieri

University of Chicago - Booth School of Business

Robert Shimer

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 2014

Abstract

This paper explores price formation when sellers are privately informed about their preferences and the quality of their asset. There are many equilibria, including a semi- separating one in which each seller's price depends on a one-dimensional index of her preferences and asset quality. This multiplicity does not rely on off-the-equilibrium path beliefs and so is not amenable to standard signaling game refinements. The semi- separating equilibrium may be not Pareto efficient, even if it is not Pareto dominated by any other equilibrium. Instead, efficient allocations may require transfers across uninformed buyers, inconsistent with any equilibrium.

Suggested Citation

Guerrieri, Veronica and Shimer, Robert J., Markets with Multidimensional Private Information (October 2014). NBER Working Paper No. w20623. Available at SSRN: https://ssrn.com/abstract=2515201

Veronica Guerrieri (Contact Author)

University of Chicago - Booth School of Business ( email )

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Robert J. Shimer

University of Chicago - Department of Economics ( email )

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HOME PAGE: http://home.uchicago.edu/~shimer/

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