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Liquidity risk in sequential trading networks

Shachar Kariv, Maciej Kotowski and Christian Leister

Games and Economic Behavior, 2018, vol. 109, issue C, 565-581

Abstract: This paper studies a model of intermediated exchange with liquidity-constrained traders. Intermediaries are embedded in a trading network and their financial capacities are private information. We characterize our model's monotone, pure-strategy equilibrium. Agents earn positive intermediation rents in equilibrium. An experimental investigation supports the model's baseline predictions concerning agents' strategies, price dynamics, and the division of surplus. While private financial constraints inject uncertainty into the trading environment, our experiment suggests they are also a behavioral speed-bump, preventing traders from experiencing excessive losses due to overbidding.

Keywords: Experiment; Economic networks; Intermediation; Liquidity; Auctions; Budget constraints (search for similar items in EconPapers)
JEL-codes: C91 D44 D85 G10 L14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Liquidity risk in sequential trading networks (2018) Downloads
Working Paper: Liquidity Risk in Sequential Trading Networks (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:109:y:2018:i:c:p:565-581

DOI: 10.1016/j.geb.2018.02.004

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