Reference

Emmanuel Farhi, and Jean Tirole, Liquid Bundles, Journal of Economic Theory, vol. 158, July 2015, pp. 634–655.

Abstract

Parties in financial markets, industries, compensation design or politics may negotiate on either a piecemeal or a bundled basis. Little is known about the desirability of bundling when values are common and/or information endogenous. The paper shows that bundling encourages information-equalizing investments, thereby facilitating trade. It accordingly revisits and qualifies existing knowledge on security design.

Keywords

Liquidity; security design; tranching; information acquisition;

JEL codes

  • D82: Asymmetric and Private Information • Mechanism Design
  • E51: Money Supply • Credit • Money Multipliers
  • G12: Asset Pricing • Trading Volume • Bond Interest Rates
  • G14: Information and Market Efficiency • Event Studies • Insider Trading
  • Replaces

    Emmanuel Farhi, and Jean Tirole, Liquid Bundles, TSE Working Paper, n. 12-328, July 2012, revised October 2013.