We study a bargaining model in which a buyer makes frequent offers to a privately informed seller, while gradually learning about the seller's type from “news.” We show that the buyer's ability to leverage this information to extract more surplus from the seller is remarkably limited. In...

We propose an information-based theory to explain time variation in liquidity and link it to a variety of patterns in asset markets. In "normal times," the market is fully liquid and gains from trade are realized immediately. However, the equilibrium also involves periods during which liquidity...

We investigate the effect of public information, such as ratings, on the security design problem of a privately informed issuer. We show that the presence of ratings has important implications for both the form of security designed and the amount of inefficient retention. The model predicts that...

Due diligence is common practice prior to the execution of corporate or real estate transactions. We propose a model of the due diligence process and analyze its effect on prices, payoffs, the likelihood of deal completion, and the distribution of completion times. In our model, if the seller...

We develop a framework to explore the effect of credit ratings on loan origination and securitization. In the model, banks privately screen and originate loans and then issue securities that are backed by loan cash flows. Issued securities are rated and sold to investors.Without ratings, banks...