Tri Vi Dang

Bargaining with endogenous information

Two ex ante identically informed agents play a double auction over the division of a trading surplus with endogenous information and common values. This paper shows that if information acquisition is not observable, three types of inefficiencies can arise. If the information cost is in an intermediate range, no pure strategy equilibrium with trade exists although the agents maintain symmetric information. If the information cost is low, any trading equilibrium exhibits costly information acquisition. If the agents face asymmetric information cost the Akerlof’s lemons problem arises as a self-fulfilling equilibrium and only partial trade occurs.

The Taxation of Bilateral Trade with Endogenous Information

This paper analyzes the effects of taxation on trade in a decentralized market. We show that a tax on profits and a transaction tax have opposite implications for information acquisition and trade in the canonical take-it-and-leave-it offer bargaining model. A (marginal) increase of a transaction tax can lead to more information production and lower the probability of efficient trade. In contrast, a (marginal) increase of a profit tax can reduce the incentive to produce information and increase the probability of efficient trade. The taxation of profits can be efficiency enhancing when information is endogenous, while it has no effect when private information is exogenous.

Lending Relationships and the Transmission of Liquidity Shocks: Evidence from a Natural Experiment

We exploit a liquidity crunch of 2013 in China as a negative shock to banks and analyze the wealth effects on listed firms. Our findings show that liquidity shocks to financial institutions impact borrowers’ performance negatively. However, firms having long-term relationship with banks outperformed in stock market and subsequently experiecend a smaller decline in cash holding than their peers without such relationship. This effect is the strongest for firms whose relationship banks are foreign banks, and the weakest for firms whose relationship banks are local banks. We also document a positive correlation between firms’ stock performances and their banks’ stock performances, as well as banks’ liquidity in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that the long-term bank-firm relationship can mitigate such negative effcts.