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The Social Costs of Side Trading

Andrea Attar (), Thomas Mariotti and François Salanié ()
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Andrea Attar: TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Thomas Mariotti: TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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 efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique 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.

Keywords: Adverse Selection; Side Trading; Second-Best Allocations (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mic
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03048803
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Published in Economic Journal, Wiley, 2020, 130 (630), pp.1608-1622. ⟨10.1093/ej/ueaa041⟩

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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 (2019) 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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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03048803

DOI: 10.1093/ej/ueaa041

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