Dynamic Adverse Selection with a Patient Seller

Beccuti, Juan; Möller, Marc (2018). Dynamic Adverse Selection with a Patient Seller. Journal of economic theory, 173, pp. 95-117. Elsevier 10.1016/j.jet.2017.10.009

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This paper considers dynamic bilateral trade with short-term commitment. We show that, when the seller is more patient than the buyer, there exist systematic differences between the optimal selling and renting mechanisms. While the former consists of simple price-posting, the latter induces the buyer to choose between a secure- and a random-delivery contract. Allowing for mechanisms more general than price-posting reduces the seller's cost of learning the buyer's valuation in the renting case. Renting leads to more learning than selling but only when general mechanisms are available. Our results contrast with the common view that the restriction to price-posting is innocuous and that informational asymmetries are more persistent under renting than under selling.

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