An Empirical Equilibrium Model of a Decentralized Asset Market

Alessandro Gavazza

No 10546, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I estimate a search-and-bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations, asset prices and welfare, and to quantify the effects of intermediaries that facilitate trade. Using business-aircraft data, I find that, relative to the Walrasian benchmark, 18.3 percent of the assets are misallocated; prices are 19.2-percent lower; and the aggregate welfare losses equal 23.9 percent. Dealers play an important role in reducing trading frictions: In a market with no dealers, a larger fraction of assets would be misallocated, and prices would be higher. Moreover, dealers reduce aggregate welfare because their operations are costly, and they impose a negative externality by decreasing the number of agents' direct transactions.

Keywords: Bargaining; Intermediaries; Search markets (search for similar items in EconPapers)
JEL-codes: C78 D83 G12 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: An Empirical Equilibrium Model of a Decentralized Asset Market (2016)
Working Paper: An empirical equilibrium model of a decentralized asset market (2016)
Working Paper: An Empirical Equilibrium Model of a Decentralized Asset Market (2010)
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