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Decentralized trading with private information

Author(s): Golosov, Mikhail; Lorenzoni, G; Tsyvinski, A

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Abstract: The paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values. We consider an economy in which a large number of agents trade two assets in bilateral meetings. A fraction of the agents has private information about the asset values. We show that, over time, uninformed agents can elicit information from their trading partners by making small offers. This form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy. As a consequence, the economy converges to a Pareto efficient allocation. © 2014 The Econometric Society.
Publication Date: May-2014
Citation: Golosov, M, Lorenzoni, G, Tsyvinski, A. (2014). Decentralized trading with private information. Econometrica, 82 (3), 1055 - 1091. doi:10.3982/ECTA8911
DOI: doi:10.3982/ECTA8911
ISSN: 0012-9682
EISSN: 1468-0262
Pages: 1055 - 1091
Type of Material: Journal Article
Journal/Proceeding Title: Econometrica
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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