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A Note on the implementation of the Pareto efficient allocation in the Lagos-Wright model

Author

Listed:
  • Tao Peng

    (Southwestern University of Finance and Economics)

Abstract

This note modifies Lagos – Wright (2005) by adding subsidies to sellers. We show that this modification can result in a Pareto efficient allocation at the Friedman rule when buyers do not have all the bargaining power. We find that the optimal rate of subsidy is increasing in buyers' relative risk aversion coefficient.

Suggested Citation

  • Tao Peng, 2012. "A Note on the implementation of the Pareto efficient allocation in the Lagos-Wright model," Economics Bulletin, AccessEcon, vol. 32(1), pages 27-36.
    • Handle: RePEc:ebl:ecbull:eb-10-00532
    as

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    References listed on IDEAS

    as
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    4. Schmitt-Grohé, Stephanie & Uribe, Martín, 2010. "The Optimal Rate of Inflation," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 13, pages 653-722, Elsevier.
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    More about this item

    Keywords

    The Friedman rule; Pareto efficient allocations; Subsidies;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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