Signaling in Competitive Search Equilibrium : Illiquidity vs. Partial Retention

This paper develops a simple competitive search model to study illiquidity and partial retention of assets as signals of asset quality in markets with private information. I find that both signals are used in equilibrium. However, for sellers with high-quality assets, illiquidity is preferred over partial retention, while the opposite is true for sellers with low-quality assets. Building on these results, I study aggregate liquidity and quality shocks. For sellers with high-quality trees, the shocks generate larger changes in trading probability than in trading volume, while the opposite happens for sellers with low-quality assets