Department of Economics


Date of this Version



Published (2023) American Economic Journal: Microeconomics, 15 (2), pp. 699-726. DOI: 10.1257/mic.20210112


Used by permission.


We study bilateral trade with a seller owning multiple units of a good, where each unit is of binary quality. The seller privately knows her “type”—defined by the number of lemons that she owns — and which units in her endowments are the lemons (“withintype adverse selection”). We characterize the set of informationally constrained Pareto optimal allocations and show that every such allocation must involve a trade characterized by a threshold λ, with types having less (more) than λ units of lemons selling only their lemons (selling their entire endowment). We provide conditions for a distribution shift that give Pareto-improving allocations.