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