UNIverse - Public Research Portal
Project cover

Limelight on Dark Markets: An Experimental Study of Liquidity and Information

Research Project
 | 
01.01.2013
 - 31.12.2015

The goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005): individuals are matched bilaterally and at random, there are gains from trades due to differences in technologies and endowments, and the terms of trade are determined through a simple bargaining protocol. Subjects buy commodities that have different private values with assets that have common values and can be subject to a private information problem. The asset plays the role of a medium of exchange, but this role can be affected by its lack of "recognizability." We study a benchmark experiment where the OTC bargaining game takes place under complete information, a set of experiments with adverse selection where the terminal value of notes are determined exogenously, and a set of experiments with hidden actions where subjects can produce fraudulent notes at some cost.

Collaborations & Cooperations

2025 - Participation or Organization of Collaborations on an international level
Rocheteau, Guillaume, University of California at Irvine, Research cooperation
2015 - Participation or Organization of Collaborations on an international level
McBride, Michael, University of California at Irvine, Research cooperation

Publications

Berentsen, Aleksander, McBride, Michael and Rocheteau, Guillaume (2017) ‘Limelight on Dark Markets: Theory and Experimental Study of Liquidity and Information’, Journal of Economic Dynamics and Control, 75, pp. 70–90. Available at: https://doi.org/10.1016/j.jedc.2016.11.003.

URLs
URLs

Members (1)

Profile Photo

Aleksander Berentsen

Principal Investigator