Information Dissemination by Insiders in Equilibrium

Posted: 30 Jun 2002

See all articles by Michael Smith

Michael Smith

Duke University

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business


This paper generates an equilibrium explanation for partial disclosure of information by an insider to privileged associates. In our model, prices are set by competitive market makers in anticipation of trading volume, but are not affected by the actual number of trades realized. Liquidity demand is not perfectly inelastic, but rather liquidity traders are sensitive to trading costs through a reservation price. Because the profits from liquidity traders are bounded, the feasibility of an equilibrium depends on the balance between the number of associates, the precision of their information and the number of liquidity traders. Partially, rather than fully, disclosing information alters this balance by limiting the informational advantage of individual associates. If the number of associates is exogenous, this partial disclosure prevents market failure. If the insider chooses the number of associates, partial disclosure allows him to serve more associates and (potentially) increase total associate profits.

Keywords: Information sharing, limited liquidity, partial disclosure

JEL Classification: D4, D82

Suggested Citation

Smith, Michael J. and Levine, Carolyn B., Information Dissemination by Insiders in Equilibrium. Available at SSRN:

Michael J. Smith (Contact Author)

Duke University ( email )

Fuqua School of Business PO Box 90120
Durham, NC 27708
United States
919-660-2932 (Phone)
919-660-8038 (Fax)

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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