Simple Market Protocols for Efficient Risk Sharing

Marco LiCalzi and Paolo Pellizzari

No 136, Working Papers from Department of Applied Mathematics, Università Ca' Foscari Venezia

Abstract: This paper studies the performance of four market protocols with egard to allocative efficiency and other performance criteria such as volume or volatility. We examine batch auctions, continuous double auctions, specialist dealerships, and a hybrid of these last two. All protocols are practically implementable because the messages that traders need to use are simple. We test the protocols by running (computerized) experiments in an environment that controls for tradersÕ behavior and rules out any informational effect. We find that all protocols generically converge to the efficient allocation in finite time. An extended comparison over other performance criteria produces no clear winner, but the presence of a specialist is associated with the best all-round performance.

Keywords: market microstructure; allocative efficiency; comparison of market institutions; performance criteria. (search for similar items in EconPapers)
JEL-codes: C63 D44 D61 G19 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-07
New Economics Papers: this item is included in nep-bec, nep-fin, nep-fmk and nep-mst
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Published in Journal of Economic Dynamics and Control 31, 2007, 3568-3590

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Related works:
Journal Article: Simple market protocols for efficient risk sharing (2007)
Working Paper: Simple market protocols for efficient risk sharing (2005)
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