Monopolistic security design in finance economies

Karl Schmedders

Economic Theory, 2001, vol. 18, issue 1, 37-72

Abstract: The purpose of this paper is to analyze endogenous asset innovation by an entrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market maker has the technology to introduce a new option into the economy and charge investors proportional transaction fees if they trade on the exchange. The market maker's objective is to choose the security and transaction fee that maximize revenues when opening the exchange. A computational analysis of this problem is necessary since there are no interesting models with closed-form solutions. We compute the price and welfare effects of the option introduction.

Keywords: Incomplete markets; Option introduction; Price effects; Welfare effects. (search for similar items in EconPapers)
JEL-codes: C63 D52 G11 G12 (search for similar items in EconPapers)
Date: 2001-04-11
Note: Received: March 14, 2000; revised version: December 12, 2000
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Monopolistic Security Design in Finance Economies (2000)
Working Paper: MONOPOLISTIC SECURITY DESIGN IN FINANCE ECONOMIES (2000)
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