Centralized vs Decentralized Markets: The Role of Connectivity

Simone Alfarano, Albert Banal-Estañol, Eva Camacho, Giulia Iori (), Burcu Kapar and Rohit Rahi
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Simone Alfarano: Universitat Jaume I
Albert Banal-Estañol: Universitat Pompeu Fabra; Barcelona School of Economics; Barcelona School of Management; City, University of London
Eva Camacho: Universitat Jaume I
Giulia Iori: Ca’ Foscari University of Venice; City, University of London
Burcu Kapar: University of Wollongong
Rohit Rahi: London School of Economics

No 2025: 13, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: We consider a setting in which privately informed agents are located in a network and trade a risky asset with other agents with whom they are directly connected. We compare the performance, both theoretically and experimentally, of a complete network (centralized market) to incomplete networks with differing levels of connectivity (decentralized markets). We show that decentralized markets can deliver higher informational efficiency, with prices closer to fundamentals, as well as higher welfare for mean-variance investors.

Keywords: Networks; heuristic learning; informational efficiency; experimental asset markets (search for similar items in EconPapers)
JEL-codes: C92 D82 G14 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2025
New Economics Papers: this item is included in nep-exp and nep-net
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