This paper shows that a transaction tax makes trades in decentralized markets more information sensitive and enlarges the range of information costs for which the equilibrium exhibits private information acquisition and endogenous adverse selection. A transaction tax reduces the probability of...

In this paper we analyze a legislative bargaining game in which parties privately informed about their preferences bargain over an ideological and a distributive decision. Communication takes place before a proposal is offered and majority rule voting determines the outcome. When the private...

In this paper we analyze a legislative bargaining game in which parties privately informed about their preferences bargain over an ideological and a distributive decision. Communication takes place before a proposal is offered and majority rule voting determines the outcome. When the private...

This paper analyzes the effects of taxation on information acquisition and bilateral trade in decentralized markets. We show that a profit tax and a transaction tax have opposite implications for equilibrium outcome in bargaining. A marginal increase of a transaction tax increases the incentive...

I consider a simple bilateral trading game between a seller and a buyer who have private valuations for an indivisible good. The seller makes a price offer which the buyer can either accept or reject. If the seller can observe the valuation of the buyer (if information is symmetric), then...

We report on an experiment on decentralized markets in the presence of adverse selection. When allowing for costless and non-binding communication (cheap-talk), there exists a partially separating equilibrium that results in a substantially higher efficiency level than the adverse selection...

This paper studies asset markets where buyers of assets do not inherit private information from previous owners and must learn asset quality over time. Imperfect information transmission reduces asymmetric information, but also reduces the trading volume, prices and efficiency. This result is...

The competitive market is informationally efficient; people only need to know prices to implement a competitive outcome. However, the standard formulation of competition neglects any underlying market microstructure; prices—which provide all necessary information—are exogenous. This paper...

We consider a standard persuasion problem in which the receiver’s action and the state of the world are both one-dimensional. Fully characterizing optimal signals when utilities are non-linear is a daunting task. Instead, we develop a general approach to understanding a key qualitative...

I study how voluntary disclosure of information affects outcomes in plea bargaining. A prosecutor negotiates a sentence with a defendant who privately knows whether he is guilty or innocent. The prosecutor can gather evidence regarding the defendant's type during negotiations, and a trial...