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Reallocation Costs and Efficiency

Author

Listed:
  • Yuval Salant
  • Ron Siegel

Abstract

We study the efficient allocation of a divisible asset when reallocation is costly. Two players initially divide an asset between them. At the time of this initial division the players' valuations for the asset are uncertain. After the uncertainty resolves, costly reallocation may take place. We first establish that the surplus associated with efficient reallocation monotonically increases or decreases in the concentration of the initial division for a wide range of cost specifications. We then characterize how the budget necessary to implement the efficient reallocation changes with the initial division. (JEL D11, D63, D81)

Suggested Citation

  • Yuval Salant & Ron Siegel, 2016. "Reallocation Costs and Efficiency," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 203-227, February.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:1:p:203-27
    Note: DOI: 10.1257/mic.20140262
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    References listed on IDEAS

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    Cited by:

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    2. Tomoyuki Yagi & Kakuho Furukawa & Jouchi Nakajima, 2022. "Productivity Trends in Japan - Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era -," Bank of Japan Working Paper Series 22-E-10, Bank of Japan.
    3. Jean-Michel Benkert, 2025. "Bilateral trade with loss-averse agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(2), pages 519-560, March.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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