Endogenous Lemon Markets : Risky Choices and Adverse Selection

We study an adverse-selection model in which the distribution of the asset is affected by unobservable actions of the seller. The seller's equilibrium behavior is characterized by a risk-seeking disposition, and a competitive market, in which the underlying distribution of the traded asset is location-independent riskier, results in less trade and social welfare in equilibrium. That is, unfavorable conditions for trade and social welfare are likely in environments in which the seller is able to manipulate the asset distribution