We study the optimal design of the rules of trade in a two-period market given that agents arrive at different times and may only trade with agents present contemporaneously. First period agents face a fixed cost of trading across periods, and their decisions of whether or not to trade in the second period result in externalities relative to the agents arriving in the second period. Given the non-convexities associated with the fixed cost, competitive trading rules can result in inefficiencies in such a market and, in fact, anonymity must be sacrificed to achieve efficiency. Efficient trading rules have a market maker (i.e., an agent who is given some market power and the right to trade across periods) who faces some competition within period trading, but not across periods. The efficient choice of who should be market maker can be made by auctioning rights to this position. If there is uncertainty across periods, then efficient mechanisms may involve multiple market makers, and the optimal number of market makers depends on the cost of trading, level of risk aversion, and presence of asymmetric information.
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Paper provided by EconWPA in its series Microeconomics with number
9711003.
Length: 37 pages Date of creation: 25 Nov 1997 Date of revision: Handle: RePEc:wpa:wuwpmi:9711003
Note: Type of Document - postscript; prepared on pc-latex; to print on Postscript; pages: 37; figures: none. comments welcome Contact details of provider: Web page: http://129.3.20.41
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Matthew O. Jackson & Sandro Brusco, 1997.
"The Optimal Design of a Market,"
Discussion Papers
1186, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Find related papers by JEL classification: D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data) C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D40 - Microeconomics - - Market Structure and Pricing - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Saijo, Tatsuyoshi & Tatamitani, Yoshikatsu & Yamato, Takehiko, 1996.
"Toward Natural Implementation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 949-80, November.
Other versions:
Saijo, T. & Tatamitani, Y. & Yamato, T., 1994.
"Toward Natural Implementation,"
Papers
340, Osaka - Institute of Social and Economic Research.
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