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