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Market imperfections

This paper provides a taxonomy of market imperfections built around the economic forces underlying them. Market imperfections affect virtually every transaction in some way, generating costs which interfere with trades that rational individuals make, or would make in the absence of the imperfection. Understanding these costs gives us insight regarding the total costs of transactions, where to place them, or whether to undertake them at all. Market imperfections also generate profit opportunities for entrepreneurs. Institutions or individuals that can lower costs that trace to imperfections have a competitive advantage and can earn economic rents — at least until competing firms adapt. Imperfections can and do change over time, but they collectively never go to zero. Identifying and solving the underlying business problems linked to these imperfections remains an ongoing challenge — and opportunity.

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Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 14 (2005)
Issue (Month): ()
Pages: 107-117

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Handle: RePEc:ris:jofitr:0952
Contact details of provider: Postal: 120 Broadway, 29th Floor New York, NY 10271
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Web page: http://www.capco.com/
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  1. Constantinides, George M., 1984. "Optimal stock trading with personal taxes : Implications for prices and the abnormal January returns," Journal of Financial Economics, Elsevier, vol. 13(1), pages 65-89, March.
  2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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  7. Calem Paul & Stutzer Michael, 1995. "The Simple Analytics of Observed Discrimination in Credit Markets," Journal of Financial Intermediation, Elsevier, vol. 4(3), pages 189-212, July.
  8. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  9. Paul Calem & Michael Stutzer, 1995. "The simple analytics of observed discrimination in credit markets," Working Papers 95-7, Federal Reserve Bank of Philadelphia.
  10. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
  11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  12. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  13. Stephen F. Quinn & William Roberds, 2003. "Are on-line currencies virtual banknotes?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-15.
  14. Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
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