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Market imperfections

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  • Ramon P. DeGennaro

Abstract

Market imperfections affect virtually every transaction in some way, generating costs that interfere with trades that rational individuals make, or would make, in the absence of the imperfection. Understanding these costs gives us insight regarding the total costs of transactions, where to place them, or whether to make them at all. Market imperfections also generate profit opportunities for entrepreneurs who can reduce or eliminate them. Institutions or individuals who can lower costs tracing to imperfections have a competitive advantage and can earn economic rents until competing firms adapt. Imperfections can and do change over time, but they collectively never go to zero. Identifying and solving the underlying business problems linked to these imperfections remain an ongoing challenge and profit opportunity.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2005-12.

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Date of creation: 2005
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Handle: RePEc:fip:fedawp:2005-12

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  2. Constantinides, George M., 1984. "Optimal stock trading with personal taxes : Implications for prices and the abnormal January returns," Journal of Financial Economics, Elsevier, vol. 13(1), pages 65-89, March.
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  9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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Cited by:
  1. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Coricelli, Fabrizio & Égert, Balázs & MacDonald, Ronald, 2006. "Monetary transmission mechanism in Central and Eastern Europe: Gliding on a wind of change," BOFIT Discussion Papers 8/2006, Bank of Finland, Institute for Economies in Transition.
  3. Qingshuo Song & G. Yin & Chao Zhu, 2010. "Utility Maximization of an Indivisible Market with Transaction Costs," Papers 1003.2930, arXiv.org.
  4. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Central & Eastern Europe: Gliding on a Wind of Change," William Davidson Institute Working Papers Series wp850, William Davidson Institute at the University of Michigan.

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