Asymmetric Information in Frictional Markets for Liquidity : Collateralized Credit vs Asset Sale

This paper studies (non-)equivalence of collateralized credit and asset sale for information-sensitive assets in over-the-counter markets. A signaling game refined by the undefeated equilibrium endogenizes the choice between pooling and separating offers and addresses the payment puzzle. The results show that non-equivalence depends on lenders' commitment power. Despite information frictions, Pareto-efficiency can occur for collateralized credit, but not for asset sales, with endogenous haircuts and over-collateralization characterizing the terms of trade. The general equilibrium determines asset prices and provides implications for liquidity and optimal policy interventions including open market operations