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Gradual Bargaining in Decentralized Asset Markets

Guillaume Rocheteau (), Lucie Lebeau (), Tai-Wei Hu () and Younghwan In ()
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Guillaume Rocheteau: Department of Economics, University of California-Irvine
Lucie Lebeau: Department of Economics, University of California-Irvine
Tai-Wei Hu: University of Bristol
Younghwan In: KAIST College of Business

No 181904, Working Papers from University of California-Irvine, Department of Economics

Abstract: We introduce a new approach to bargaining, with strategic and axiomatic foundations, into models of decentralized asset markets. Bargaining with an agenda assumes that asset portfolios are partitioned into bundles sold sequentially, and encompasses both the Nash and Kalai solutions as special cases. Gradual negotiations are optimal for portfolio holders and, in general equilibrium, they raise social welfare by reducing asset misallocation. In the presence of multiple assets, our theory generates a pecking order, and di§erences in returns and turnover. We apply our model to the study of open-market operations and the determination of the exchange rate between (crypto-)currencies.

Keywords: Decentralized asset markets; Bargaining with an agenda; Nash program; Rate-of-return dominance (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-pay
Date: 2018-09
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