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The Social Costs of Side Trading

Andrea Attar, Thomas Mariotti and François Salanié ()

No 34, EconPol Working Paper from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best effciency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists only one budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

Date: 2019
New Economics Papers: this item is included in nep-mic
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Related works:
Journal Article: The Social Costs of Side Trading (2020) Downloads
Working Paper: The Social Costs of Side Trading (2020) Downloads
Working Paper: The Social Costs of Side Trading (2020) Downloads
Working Paper: The Social Costs of Side Trading (2019) Downloads
Working Paper: The Social Costs of Side Trading (2019) Downloads
Working Paper: The Social Costs of Side Trading (2019) Downloads
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