This paper incorporates institutional features of trading markets including the discrete nature of the price grid and determines the consequences for prices and strategic behavior. Interactions between market makers is complex: because equilibrium prices are not determined by a...

On the NYSE and exchanges that feature open limit order books, larger orders receive worse prices. Accordingly, market microstructure theory has focused on developing consistent models. However, on exchanges such as the London Stock Exchange, NASDAQ and FX markets, larger orders receive better...

A standard presumption of market microstructure models is that competition between risk-neutral market makers inevitably leads to price schedules that leave market makers zero expected profits conditional on the order flow. This paper documents an important lack of robustness of this zero-profit...

We study insider trading in a dynamic setting. Rational, but uninformed, traders choose between investment projects with different levels of insider trading. Insider trading distorts investment towards assets with less private information. However, when investment is sufficiently information...

This paper investigates the consequences of noisy evaluation of worker skills for skill investment and hiring. Individuals skew investment toward skills that most managers can best evaluate. In turn, this reinforces a tendency for managers to hire job applicants whose attributes they can best...