Liquid Bundles

Emmanuel Farhi, and Jean Tirole


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.


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


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

Published in

Journal of Economic Theory, vol. 158, July 2015, pp. 634–655