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Endogenous Transaction Costs

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  • V. Filipe MARTINS-DA-ROCHA
  • YIANNIS VAILAKIS

    (Department of Economics, University of Exeter)

Abstract

The paper proposes an alternative general equilibrium formulation of financial asset economies with transactions costs. Transaction costs emerge endogenously at equilibrium and reflect agents decisions of intermediating financial activities at the expense of providing labor services. An equilibrium is shown to exist in the case of real asset structures.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0810.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0810.

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Date of creation: 2008
Date of revision:
Handle: RePEc:exe:wpaper:0810

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: Competitive equilibrium; Incomplete markets; Endogenous transaction costs.;

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References

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  1. Arrow, Kenneth J. & Hahn, Frank, 1999. "Notes on Sequence Economies, Transaction Costs, and Uncertainty," Journal of Economic Theory, Elsevier, vol. 86(2), pages 203-218, June.
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  3. Jones, Charles M & Seguin, Paul J, 1997. "Transaction Costs and Price Volatility: Evidence from Commission Deregulation," American Economic Review, American Economic Association, vol. 87(4), pages 728-37, September.
  4. Andrew Lo & Harry Mamaysky & Jiang Wang, 2001. "Asset Prices and Trading Volume Under Fixed Transactions Costs," Yale School of Management Working Papers, Yale School of Management ysm188, Yale School of Management, revised 01 Sep 2009.
  5. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 285-300, June.
  6. Herings,P. Jean-Jacques & Schmedders,Karl, 2000. "Computing Equilibria in Finance Economies with Incomplete Markets and Transaction Costs," Research Memorandum 049, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Markeprand, Tobias, 2008. "On financial equilibrium with intermediation costs," Journal of Mathematical Economics, Elsevier, vol. 44(2), pages 148-156, January.
  8. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
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  10. Duffie, Darrell & Sun, Tong-sheng, 1990. "Transactions costs and portfolio choice in a discrete-continuous-time setting," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 14(1), pages 35-51, February.
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  12. Laitenberger, Marta, 1996. "Existence of financial market equilibria with transaction costs," Ricerche Economiche, Elsevier, Elsevier, vol. 50(1), pages 69-77, March.
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  14. Hau, Harald, 2002. "The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3651, C.E.P.R. Discussion Papers.
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  16. Kurz, Mordecai, 1974. "Arrow-Debreu Equilibrium of an Exchange Economy with Transaction Cost," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 699-717, October.
  17. Constantinides, George M, 1986. "Capital Market Equilibrium with Transaction Costs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 842-62, August.
  18. John Heaton & Deborah Lucas, 1993. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," NBER Working Papers 4249, National Bureau of Economic Research, Inc.
  19. Bergstrom, Theodore C., 1976. "How to discard `free disposability' - at no cost," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 131-134, July.
  20. Frank Milne & Edwin Neave, 2003. "A General Equilibrium Financial Asset Economy with Transaction Costs and Trading Constraints," Working Papers, Queen's University, Department of Economics 1082, Queen's University, Department of Economics.
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  22. S. Rao Aiyagari, 1993. "Explaining financial market facts: the importance of incomplete markets and transaction costs," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 17-31.
  23. Polemarchakis, H. M. & Ku, Bon-Il, 1990. "Options and equilibrium," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 107-112.
  24. Véronique Genre & Daphne Momferatou & Gilles Mourre, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
  25. De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
  26. Bisin, Alberto, 1998. "General Equilibrium with Endogenously Incomplete Financial Markets," Journal of Economic Theory, Elsevier, vol. 82(1), pages 19-45, September.
  27. Kurz, Mordecai, 1974. "Equilibrium in a Finite Sequence of Markets with Transaction Cost," Econometrica, Econometric Society, Econometric Society, vol. 42(1), pages 1-20, January.
  28. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
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  30. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, Econometric Society, vol. 39(3), pages 417-39, May.
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  33. Repullo, Rafael, 1987. "The Existence of Equilibrium without Free Disposal in," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 275-90, June.
  34. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
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Citations

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Cited by:
  1. Gruber, Stefan & Marattin, Luigi, 2008. "Taxation, infrastructure, and endogenous trade costs in New Economic Geography," MPRA Paper 1068, University Library of Munich, Germany.
  2. Olaf Jonkeren & Erhan Demirel & Jos van Ommeren & Piet Rietveld, 2011. "Endogenous transport prices and trade imbalances," Journal of Economic Geography, Oxford University Press, vol. 11(3), pages 509-527, May.
  3. Redding, Stephen J., 2009. "Economic Geography: a Review of the Theoretical and Empirical Literature," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7126, C.E.P.R. Discussion Papers.
  4. Charles Nolan & Alex Trew, 2011. "Transaction costs and institutions," Working Papers, Business School - Economics, University of Glasgow 2011_14, Business School - Economics, University of Glasgow.
  5. V. Martins-da-Rocha & Yiannis Vailakis, 2010. "Financial markets with endogenous transaction costs," Economic Theory, Springer, Springer, vol. 45(1), pages 65-97, October.

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