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- Title
Information Spillovers, Gains from Trade, and Interventions in Frozen Markets.
- Authors
Camargo, Braz; Kim, Kyungmin; Lester, Benjamin
- Abstract
We study government interventions in markets suffering from adverse selection. Importantly, asymmetric information prevents both the realization of gains from trade and the production of information that is valuable to other market participants. We find a fundamental tension in maximizing welfare: while some intervention is required to restore trading, too much intervention depletes trade of its informational content. We characterize the optimal policy that balances these two considerations, and explore how it depends on features of the environment. Our model can be used to study a program introduced in 2009 to restore information production in the market for legacy assets.
- Subjects
INTERVENTION (Federal government); FINANCIAL markets; ADVERSE selection (Commerce); INFORMATION asymmetry; MARKET failure; FINANCIAL markets -- Government policy; MATHEMATICAL models
- Publication
Review of Financial Studies, 2016, Vol 29, Issue 5, p1291
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhv129