Working Paper
INFORMATION SPILLOVERS, GAINS FROM TRADE, AND INTERVENTIONS IN FROZEN MARKETS
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
Keywords: government policy; Government Intervention;
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Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2016-11-03
Number: 16-28
Pages: 65 pages