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What Makes Markets Allocationally Efficient?

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Author Info
Gode, Dhananjay K
Sunder, Shyam

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Abstract

What determines the allocative efficiency of markets? Why are double auctions, even with untrained human traders, allocationally efficient? The authors provide a simple explanation for these complex phenomena by showing how externally observable rules that define a market cause high allocative efficiency when individuals remain within the confines of these rules. The authors also show how the oft-ignored shape of extramarginal demand and supply affects efficiency by influencing the inverse relationship between the magnitude of efficiency loss and its probability. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 112 (1997)
Issue (Month): 2 (May)
Pages: 603-30
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Handle: RePEc:tpr:qjecon:v:112:y:1997:i:2:p:603-30

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