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An empirical equilibrium model of a decentralized asset market

Gavazza, Alessandro (2016) An empirical equilibrium model of a decentralized asset market. Econometrica, 84 (5). pp. 1755-1798. ISSN 0012-9682

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Identification Number: 10.3982/ECTA10847

Abstract

I estimate a search-and-bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations, asset prices and welfare, and to quantify the effects of intermediaries that facilitate trade. Using business-aircraft data, I find that, relative to the Walrasian benchmark, 18.3 percent of the assets are misallocated; prices are 19.2-percent lower; and the aggregate welfare losses equal 23.9 percent. Dealers play an important role in reducing trading frictions: In a market with no dealers, a larger fraction of assets would be misallocated, and prices would be higher. However, dealers reduce aggregate welfare because their operations are costly, and they impose a negative externality by decreasing the number of agents’ direct transactions.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/
Additional Information: © 2016 The Wiley
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Sets: Departments > Economics
Date Deposited: 26 Apr 2016 14:38
Last Modified: 20 Jul 2019 02:14
URI: http://eprints.lse.ac.uk/id/eprint/66234

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