A Note on the implementation of the Pareto efficient allocation in the Lagos-Wright model

Tao Peng

Economics Bulletin, 2012, vol. 32, issue 1, 27-36

Abstract: This note modifies Lagos – Wright (2005) by adding subsidies to sellers. We show that this modification can result in a Pareto efficient allocation at the Friedman rule when buyers do not have all the bargaining power. We find that the optimal rate of subsidy is increasing in buyers' relative risk aversion coefficient.

Keywords: The Friedman rule; Pareto efficient allocations; Subsidies (search for similar items in EconPapers)
JEL-codes: E0 (search for similar items in EconPapers)
Date: 2012-01-09
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