| This dissertation considers how private information affects the terms of trade of a long-lived asset. We show, for conditionally independent signals, that the owner's decision to sell, expected prices, and continuation values are the same for a large class of auction mechanisms, and derive a robust No-Trade Theorem. For conditionally affiliated signals, we show that revenue ranking implies volume ranking. In particular, we show that volume is larger for English auctions than for second-price auctions, which in turn have larger volume than first-price auctions. Further, we consider how various sources of illiquidity affect asset prices. We find that adverse selection is not a trading cost on average, and therefore future trading “costs” have no direct impact on current prices. Adverse selection can lead to allocation inefficiencies, which influence prices. Specifically, prices are reduced by the present value of all future allocation costs. All present and future costs associated with imperfect competition, market-wide financial distress, and fixed transaction costs have a direct effect on prices. Finally, we show that all these sources of illiquidity affect assets of different maturities differently, and study how they interact with the macro economy. |
