Department of Economics and Business Economics

Bilateral trade with strategic gradual learning

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • Kfir Eliaz
  • Alexander Frug, Barcelona Graduate School of Economics

We propose a model of bilateral trade in which private information about the quality of an asset can be acquired only gradually over time. An asset is characterized by a vector of binary i.i.d. attributes, and its worth to a player is equal to a weighted sum of the attributes’ values (where weights differ across players). The seller is initially uninformed about the attributes’ values, and each period he decides whether to make a price offer or to costlessly inspect an attribute's value. The buyer does not know the attributes’ values, but he may or may not observe which inspections were performed (we consider both cases). We study the seller's strategic scheduling of inspections and its effect on the realized gains from trade in equilibrium. We identify the necessary and sufficient conditions under which the players can realize some gains from trade, and all gains from trade.

Original languageEnglish
JournalGames and Economic Behavior
Pages (from-to)380-395
Number of pages16
Publication statusPublished - 1 Jan 2018

    Research areas

  • Endogenous asymmetric information, Gains from trade, Gradual learning, INFORMATION ACQUISITION, MARKET, Strategic scheduling

See relations at Aarhus University Citationformats

ID: 142973182