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On the Efficiency of Decentralized Exchange with Resale Possibilities

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  • Groes, Ebbe
  • Tranaes, Torben

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 are negligible, we would nevertheless expect an efficient allocation to result from decentralized exchange. This paper suggests that this depends on the nature of the commodity; while the allocation of a durable good will be efficient, the allocation of a "consumable" good need not. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Groes, Ebbe & Tranaes, Torben, 1999. "On the Efficiency of Decentralized Exchange with Resale Possibilities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 423-438, May.
  • Handle: RePEc:ier:iecrev:v:40:y:1999:i:2:p:423-38
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    Cited by:

    1. Julien, Benoit & Kennes, John & King, Ian, 2006. "The Mortensen rule and efficient coordination unemployment," Economics Letters, Elsevier, vol. 90(2), pages 149-155, February.
    2. Harstad, Bård, 2016. "The market for conservation and other hostages," Journal of Economic Theory, Elsevier, vol. 166(C), pages 124-151.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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