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Non-Exclusive Contracts, Collateralized Trade, and a Theory of an Exchange

Author

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  • Yaron Leitner

Abstract

Liquid markets where agents have limited capacity to sign exclusive contracts, as well as imperfect knowledge of previous transactions by others, may permit agents to promise the same asset to multiple counterparties and subsequently default. I show that in such markets an exchange can arise as an intermediary whose only role is to set limits on the number of contracts that agents can report voluntarily. In some cases, these limits must be non-binding in equilibrium, and reported trades must not be made public. An alternative to an exchange is collateralized trade, and the gains from an exchange increase when agents have more intangible capital or when the cost of entering contracts becomes lower

Suggested Citation

  • Yaron Leitner, 2004. "Non-Exclusive Contracts, Collateralized Trade, and a Theory of an Exchange," 2004 Meeting Papers 630, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:630
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    More about this item

    Keywords

    Contracting with non-exclusivity; role of financial intermediary; collateral;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G0 - Financial Economics - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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