Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77535
Authors: 
Berentsen, Aleksander
McBride, Michael
Rocheteau, Guillaume
Year of Publication: 
2013
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 126
Abstract: 
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.
Subjects: 
liquidity
money
information
experiments
JEL: 
G12
G14
E42
D82
D83
Document Type: 
Working Paper

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