Endogenous Trading Networks

Daniele Condorelli and Andrea Galeotti

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: We investigate the effects of a class of trading protocols on the architecture and efficiency properties of endogenously formed trading networks. In our model, the opportunity to sell valuable objects occurs randomly to different individuals. A sale can only be realized if two individuals are connected, directly or indirectly, but forming and maintaining a trading relation is a costly investment. When the outcome of trading is efficient and provides no intermediation rents, a tension between equilibrium and efficient networks emerges when the cost of forming a link is at an intermediate level. There are two types of inefficiencies. Either all equilibrium networks are under- connected when compared to efficient networks, or a multiplicity of equilibriam may exist and agents may fail to coordinate on the efficient equilibrium network

Keywords: HB (search for similar items in EconPapers)
Date: 2012-01-25
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Citations: View citations in EconPapers (12)

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