Social Optimal Search Intensity in Over-the-Counter Markets

Shuo Liu

Review of Economic Dynamics, 2024, vol. 53, 224-282

Abstract: This paper investigates the endogenous search intensity of traders in the OTC market, examining both competitive equilibrium and socially optimal scenario. Our study introduces a random search-and-matching model, where traders have the flexibility to ex post choose and adjust their search intensities based on two trader-level states: asset position and preference type. Our findings uncover the following key insights: (1) Changes in the level of search friction and/or the frequency of shocks on traders' preference type may lead to traders switching between high and low search intensities, shifting between the core and periphery of the trading network; and (2) Social optimality is achieved in the absence of intermediation, where no trader simultaneously invests in positive buying intensity and positive selling intensity. In contrast, competitive equilibrium reveals that some traders tend to over-search while others under-search, compared to the socially optimal outcome. (Copyright: Elsevier)

Keywords: Endogenous search intensity; Socially optimal solution; Core-periphery network (search for similar items in EconPapers)
JEL-codes: G10 G12 G21 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2024.04.002
None subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Social Optimal Search Intensity in Over-the-Counter Markets" (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:22-80

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2024.04.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().