Signaling in Dynamic Markets with Adverse Selection

We study trade in dynamic decentralized markets with adverse selection. Differently from the literature on the topic so far, we assume that the informed sellers make the offers, so that signaling through prices is possible. We establish basic properties of equilibria, provide necessary and sufficient conditions for equilibrium existence, and discuss the two-type case and separating equilibria in detail. Our main result is that market efficiency---measured by the maximum equilibrium welfare---is \emph{invariant} to trading frictions. This shows that signaling and screening have markedly different implications for the relationship between market efficiency and trading frictions