On the Efficiency of Decentralized Exchange with Resale Possibilities
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 negligible we would, nevertheless, expect an efficient allocation to emerge from decentralized exchange. Our analysis suggests that this depends on the nature of the commodity; if it is a consumable good (i.e., a good which is completely used up at the moment of consumption) the allocation might be inefficient, while if the commodity is a durable good (i.e., a good that yields a flow of utility over time) the allocation is efficient and uniquely determined.
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|Date of creation:||Feb 1997|
|Date of revision:|
|Publication status:||Published in: International Economic Review. May 1999; 40(2): 423-38|
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