Perishable Goods versus Re-tradable Assets: A Theoretical Reappraisal of a Fundamental Dichotomy

Sabiou Inoua () and Vernon Smith ()
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Sabiou Inoua: Economic Science Institute, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: Although various typologies of goods are commonly adopted in economics, one stood out in market experiment results contrasting market stability and efficiency with market instability: non-durable, or perishable, goods versus durable re-tradable assets. This dichotomy of goods also proved central for understanding macroeconomic instability more broadly: about 75% of consumer spending is bought for final consumption, and is a rock of stability; instability arises from the other 25% re-tradable goods, most prominently, houses. In this chapter, we revisit this well-known but underappreciated dichotomy of goods in the light of our theory of classical competitive price formation. We also emphasize the fundamental and unifying nature of the concept of asset re-tradability as a general concept in finance: the concept of asset re-tradability allows for a simple, transparent, and unified treatment of the no-arbitrage and no-trade theorems of neoclassical finance.

Keywords: perishable goods; re-tradable assets; market experiments; speculation; no-trade theorems; no-arbitrage principle; excess volatility; clustered volatility; trend following; power-law distribution (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (1)

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Working Paper: Perishable Goods versus Re-tradable Assets: A Theoretical Reappraisal of a Fundamental Dichotomy (2023)
Chapter: Perishable goods versus re-tradable assets: A theoretical reappraisal of a fundamental dichotomy (2022)
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