Education Signalling with Preemptive Offers

Swinkels, Jeroen M.

doi:10.1111/1467-937x.00115

Cited by 89 publications

(91 citation statements)

References 9 publications

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“…My paper contributes to theoretical literature on dynamic markets for lemons. In particular, I follow the line of Swinkels (1999), Daley and Green (2012) and Strebulaev, Zhu and Zryumov (2014) by assuming that investors do not observe previous offers received by entrepreneurs (private offers assumption). Unlike Swinkels (1999), who solves a model in which the lemons condition is not binding, and Daley and Green (2012) and Strebulaev, Zhu and Zryumov (2014), who focus on slow revelation of information, I primarily investigate the interaction between variation in gains from trade and the endogenous quality of entry.…”

Section: Related Literaturementioning

confidence: 99%

Dynamic Adverse Selection: Time-Varying Market Conditions and Endogenous Entry

Zryumov

2015

SSRN Journal

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In this paper I analyze the effects of time-varying market conditions and endogenous entry on the equilibrium dynamics of markets plagued by adverse selection. I show that variation in gains from trade, stemming from market conditions, creates an option value and distorts liquidity when gains from trade are low. An improvement in market conditions triggers a wave of high-quality deals due to the preceding illiquidity and lack of incentives to signal quality. When gains from trade are high, the market is fully liquid; high prices and no delay in trade attract low-grade assets, and the average quality deteriorates. My analysis also reveals that illiquidity can act as a remedy as well as a cause of inefficiency: partial illiquidity allows for screening of assets and restores efficient entry incentives. I demonstrate model implications using several applications: early stage financing, initial public offerings, and private equity buyouts. Disciplines Finance and Financial ManagementThis working paper is available at ScholarlyCommons: http://repository.upenn.edu/fnce_papers/24Electronic copy available at: http://ssrn.com/abstract=2653129 conditions triggers a wave of high-quality deals due to the preceding illiquidity and lack of incentives to signal quality. When gains from trade are high, the market is fully liquid; high prices and no delay in trade attract low-grade assets, and the average quality deteriorates. My analysis also reveals that illiquidity can act as a remedy as well as a cause of inefficiency: partial illiquidity allows for screening of assets and restores efficient entry incentives. I demonstrate model implications using several applications:early stage financing, initial public offerings, and private equity buyouts. * I thank my advisors Andrzej Skrzypacz and Ilya Strebulaev for numerous lengthy discussions, valuable feedback, continuous support, and encouragement. I would also like to thank Peter DeMarzo, Steven Grenadier, and participants in the Stanford GSB Research Seminar for many constructive comments.†

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Section: Related Literaturementioning

confidence: 99%

Dynamic Adverse Selection: Time-Varying Market Conditions and Endogenous Entry

Zryumov

2015

SSRN Journal

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“…When the SLC fails, the high type's opportunity cost is positive regardless of the market belief. With low enough news quality, the potential benefit from waiting is outweighed by this cost and the unique equilibrium involves immediate trade for all beliefs (similar to Swinkels (1999)). …”

Section: Introductionmentioning

confidence: 99%

Waiting for News in the Market for Lemons

2012

Econometrica

194

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We study a dynamic setting in which stochastic information (news) about the value of a privately informed seller's asset is gradually revealed to a market of buyers. We construct an equilibrium that involves periods of no trade or market failure. The no-trade period ends in one of two ways: either enough good news arrives, restoring confidence and markets reopen, or bad news arrives, making buyers more pessimistic and forcing capitulation that is, a partial sell-off of low-value assets. Conditions under which the equilibrium is unique are provided. We analyze welfare and efficiency as they depend on the quality of the news. Higher quality news can lead to more inefficient outcomes. Our model encompasses settings with or without a standard static adverse selection problem-in a dynamic setting with sufficiently informative news, reservation values arise endogenously from the option to sell in the future and the two environments have the same equilibrium structure.

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“…Such reasoning has been quite prominent in bargaining literature ( [1,5]) and later in a series of papers extending Spence's job market signaling model ( [18,24,9]). In the models of these papers, typically, "waiting (or going to school)" is less costly for the "strong" type of the informed player.…”

Section: Introductionmentioning

confidence: 99%

Repeated signaling games

Kaya

2009

Games and Economic Behavior

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Although many signaling situations are best interpreted as repeated games, prior research often models them as one-shot games. We analyze a class of repeated signaling games in which the informed player's type is persistent and the history of actions are perfectly observable. In this context a large class of possibly complex sequences of signals can be supported as the separating equilibrium actions of the "strong type" of the informed player. We characterize the set of such sequences.We also characterize the sequences of signals in least cost separating equilibria of these games. We show that these sequences in general have a simple structure.Moreover, many of them involve costly signaling after beliefs become degenerate. JEL Classification Numbers: C70, C73, D82

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Education Signalling with Preemptive Offers

Cited by 89 publications

References 9 publications

Dynamic Adverse Selection: Time-Varying Market Conditions and Endogenous Entry

Dynamic Adverse Selection: Time-Varying Market Conditions and Endogenous Entry

Waiting for News in the Market for Lemons

Repeated signaling games

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