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On the Efficiency of Decentralized Exchange with Resale Possibilities

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Author Info

  • Ebbe Groes

    (Institute of Economics, University of Copenhagen)

  • Torben Tranæs

    (Institute of Economics, University of Copenhagen)

Abstract

This paper studies decentralized exchange by bilateral matching and bargaining when resale is possible. Decentralized exchange involves the risk that goods and services may be allocated inefficiently; if low valuation buyers consume while high valuation buyers do not then social welfare is reduced. If resale is possible and transaction costs negligible we would, nevertheless, expect an efficient allocation to emerge from decentralized exchange. Our analysis suggests that this depends on the nature of the commodity; if it is a consumable good (i.e., a good which is completely used up at the moment of consumption) the allocation might be inefficient, while if the commodity is a durable good (i.e., a good that yields a flow of utility over time) the allocation is efficient and uniquely determined.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-04.

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Length: 21 pages
Date of creation: Feb 1997
Date of revision:
Publication status: Published in: International Economic Review. May 1999; 40(2): 423-38
Handle: RePEc:kud:kuieci:1997-04

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Related research

Keywords: resale; decentralized trade; durable vs. consumable goods; bargaining and markets;

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Cited by:
  1. John Kennes & Benoit Julien & Ian King, 2002. "The Mortensen Rule and Efficient Coordination Unemployment," Macroeconomics 0206001, EconWPA.
  2. Bård Harstad, 2013. "The Market for Conservation and Other Hostages," CESifo Working Paper Series 4296, CESifo Group Munich.

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