An empirical equilibrium model of a decentralized asset market

Alessandro Gavazza

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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. However, dealers reduce aggregate welfare because their operations are costly, and they impose a negative externality by decreasing the number of agents’ direct transactions.

JEL-codes: J01 J1 R14 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-dge and nep-pke
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Citations: View citations in EconPapers (35)

Published in Econometrica, September, 2016, 84(5), pp. 1755-1798. ISSN: 0012-9682

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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 (2015)
Working Paper: An Empirical Equilibrium Model of a Decentralized Asset Market (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:66234

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