An empirical equilibrium model of a decentralized asset market. (English) Zbl 1420.91238
Summary: I estimate a search-and-bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations, asset prices, and welfare, and to quantify the effects of intermediaries that facilitate trade. Using business-aircraft data, I find that, relative to the Walrasian benchmark, 18.3 percent of the assets are misallocated; prices are 19.2 percent lower; and the aggregate welfare losses equal 23.9 percent. Dealers play an important role in reducing trading frictions: In a market with no dealers, a larger fraction of assets would be misallocated, and prices would be higher. However, dealers reduce aggregate welfare because their operations are costly, and they impose a negative externality by decreasing the number of agents’ direct transactions.
References:
| [1] | Albrecht, J., and B.Axell (1984): “An Equilibrium Model of Search Unemployment,” Journal of Political Economy, 92 (5), 824-840. |
| [2] | Biglaiser, G. (1993): “Middlemen as Experts,” The RAND Journal of Economics, 24 (2), 212-223. |
| [3] | Budish, E. B., P.Cramton, and J. J.Shim (2015): “The High‐Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response,” The Quarterly Journal of Economics, 130 (4), 1547-1621. · Zbl 1400.91211 |
| [4] | Cahuc, P., F.Postel‐Vinay, and J.‐M.Robin (2006): “Wage Bargaining With on‐the‐Job Search: Theory and Evidence,” Econometrica, 74 (2), 323-364. 10.1111/j.1468-0262.2006.00665.x · Zbl 1145.91333 |
| [5] | Carrillo, P. E. (2012): “An Empirical Stationary Equilibrium Search Model of the Housing Market,” International Economic Review, 53 (1), 203-234. 10.1111/j.1468-2354.2011.00677.x · Zbl 1420.91112 |
| [6] | Demsetz, H. (1968): “The Cost of Transacting,” The Quarterly Journal of Economics, 82 (1), 33-53. |
| [7] | Duffie, D., N.Gârleanu, and L. H.Pedersen (2005): “Over‐the‐Counter Markets,” Econometrica, 73 (6), 1815-1847. 10.1111/j.1468-0262.2005.00639.x · Zbl 1153.91489 |
| [8] | Duffie, D., N.Gârleanu, and L. H.Pedersen (2007): “Valuation in Over‐the‐Counter Markets,” Review of Financial Studies, 20 (6), 1865-1900. |
| [9] | Eckstein, Z., and G. J.Van den Berg (2007): “Empirical Labor Search: A Survey,” Journal of Econometrics, 136 (2), 531-564. 10.1016/j.jeconom.2005.11.006 · Zbl 1418.62448 |
| [10] | Eckstein, Z., and K. I.Wolpin (1990): “Estimating a Market Equilibrium Search Model From Panel Data on Individuals,” Econometrica, 58 (4), 783-808. · Zbl 0731.90029 |
| [11] | Eisfeldt, A. L., and A. A.Rampini (2006): “Capital Reallocation and Liquidity,” Journal of Monetary Economics, 53 (3), 369-399. |
| [12] | Flinn, C. J. (2006): “Minimum Wage Effects on Labor Market Outcomes Under Search, Matching, and Endogenous Contact Rates,” Econometrica, 74 (4), 1013-1062. 10.1111/j.1468-0262.2006.00693.x · Zbl 1151.91599 |
| [13] | Gale, D. (1987): “Limit Theorems for Markets With Sequential Bargaining,” Journal of Economic Theory, 43 (1), 20-54. 10.1016/0022-0531(87)90114-1 · Zbl 0635.90015 |
| [14] | Gautier, P. A., and C. N.Teulings (2015): “Sorting and the Output Loss Due to Search Frictions,” Journal of the European Economic Association, 13 (6), 1136-1166. |
| [15] | Gautier, P. A., and C. N.Teulings (2006): “How Large Are Search Frictions?” Journal of the European Economic Association, 4 (6), 1193-1225. |
| [16] | Gavazza, A. (2011a): “Leasing and Secondary Markets: Theory and Evidence From Commercial Aircraft,” Journal of Political Economy, 119 (2), 325-377. |
| [17] | Gavazza, A. (2011b): “The Role of Trading Frictions in Real Asset Markets,” American Economic Review, 101 (4), 1106-1143. |
| [18] | Gavazza, A. (2016): “Supplement to ‘An Empirical Equilibrium Model of a Decentralized Asset Market’,” Econometrica Supplemental Material, 84, http://dx.doi.org/10.3982/ECTA10847. · Zbl 1420.91238 · doi:10.3982/ECTA10847 |
| [19] | Gavazza, A., A.Lizzeri, and N.Roketskiy (2014): “A Quantitative Analysis of the Used‐car Market,” American Economic Review, 104 (11), 3668-3700. |
| [20] | Gilligan, T. W. (2004): “Lemons and Leases in the Used Business Aircraft Market,” Journal of Political Economy, 112 (5), 1157-1180. |
| [21] | Green, R. C., B.Hollifield, and N.Schürhoff (2007a): “Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues,” Journal of Financial Economics, 86 (3), 643-682. |
| [22] | Green, R. C., B.Hollifield, and N.Schürhoff (2007b): “Financial Intermediation and the Costs of Trading in an Opaque Market,” Review of Financial Studies, 20 (2), 275-314. |
| [23] | Grossman, S. J., and M. H.Miller (1988): “Liquidity and Market Structure,” The Journal of Finance, 43 (3), 617-633. |
| [24] | Hall, G., and J.Rust (2000): “An Empirical Model of Inventory Investment by Durable Commodity Intermediaries,” Carnegie-Rochester Conference Series on Public Policy, 52, 171-214. |
| [25] | Hansen, L. P. (1982): “Large Sample Properties of Generalized Method of Moments Estimators,” Econometrica, 50 (4), 1029-1054. 10.2307/1912775 · Zbl 0502.62098 |
| [26] | Hendel, I., and A.Lizzeri (1999): “Adverse Selection in Durable Goods Markets,” American Economic Review, 89 (5), 1097-1115. |
| [27] | Hsieh, C.‐T., and E.Moretti (2003): “Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry,” Journal of Political Economy, 111 (5), 1076-1122. |
| [28] | Lagos, R., and G.Rocheteau (2009): “Liquidity in Asset Markets With Search Frictions,” Econometrica, 77 (2), 403-426. 10.3982/ECTA7250 · Zbl 1158.91363 |
| [29] | Leslie, P., and A.Sorensen (2014): “Resale and Rent‐Seeking: An Application to Ticket Markets,” Review of Economic Studies, 81 (1), 266-300. 10.1093/restud/rdt033 · Zbl 1405.91486 |
| [30] | Maksimovic, V., and G.Phillips (2001): “The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?” The Journal of Finance, 56 (6), 2019-2065. |
| [31] | Mankiw, N. G., and M. D.Whinston (1986): “Free Entry and Social Inefficiency,” The RAND Journal of Economics, 17 (1), 48-58. |
| [32] | Mankiw, N. G., and S. P.Zeldes (1991): “The Consumption of Stockholders and Nonstockholders,” Journal of Financial Economics, 29 (1), 97-112. |
| [33] | Miao, J. (2006): “A Search Model of Centralized and Decentralized Trade,” Review of Economic Dynamics, 9 (1), 68-92. |
| [34] | Mortensen, D. T., and R.Wright (2002): “Competitive Pricing and Efficiency in Search Equilibrium,” International Economic Review, 43 (1), 1-20. 10.1111/1468-2354.t01-1-00001 |
| [35] | O’Hara, M. (1995): Market Microstructure Theory. Cambridge: Blackwell. |
| [36] | Pagnotta, E., and T.Philippon (2011): “Competing on Speed”, Working Paper 17652, National Bureau of Economic Research. |
| [37] | Parker, J. A., and A.Vissing‐Jørgensen (2009): “Who Bears Aggregate Fluctuations and How?” American Economic Review, 99 (2), 399-405. |
| [38] | Porter, R. H., and P.Sattler (1999): “Patterns of Trade in the Market for Used Durables: Theory and Evidence,” Working Paper 7149, National Bureau of Economic Research. |
| [39] | Pulvino, T. C. (1998): “Do Asset Fire Sales Exist? An Empirical Investigation of Commercial Aircraft Transactions,” The Journal of Finance, 53 (3), 939-978. |
| [40] | Ramey, V. A., and M. D.Shapiro (1998): “Costly Capital Reallocation and the Effects of Government Spending,” Carnegie-Rochester Conference Series on Public Policy, 48, 145-194. |
| [41] | Ramey, V. A., and M. D.Shapiro (2001): “Displaced Capital: A Study of Aerospace Plant Closings,” Journal of Political Economy, 109 (5), 958-992. |
| [42] | Rubinstein, A., and A.Wolinsky (1985): “Equilibrium in a Market With Sequential Bargaining,” Econometrica, 53 (5), 1133-1150. 10.2307/1911015 · Zbl 0582.90010 |
| [43] | Rubinstein, A., and A.Wolinsky (1987): “Middlemen,” The Quarterly Journal of Economics, 102 (3), 581-594. 10.2307/1884218 |
| [44] | Shevchenko, A. (2004): “Middlemen,” International Economic Review, 45 (1), 1-24. 10.1111/j.1468-2354.2004.00115.x |
| [45] | Spulber, D. F. (1999): Market Microstructure: Intermediaries and the Theory of the Firm. Cambridge: Cambridge University Press. |
| [46] | Stolyarov, D. (2002): “Turnover of Used Durables in a Stationary Equilibrium: Are Older Goods Traded More?” Journal of Political Economy, 110 (6), 1390-1413. |
| [47] | Vayanos, D., and T.Wang (2007): “Search and Endogenous Concentration of Liquidity in Asset Markets,” Journal of Economic Theory, 136 (1), 66-104. 10.1016/j.jet.2006.08.001 · Zbl 1256.91062 |
| [48] | Vayanos, D., and P.‐O.Weill (2008): “A Search‐Based Theory of the On‐the‐Run Phenomenon,” The Journal of Finance, 63 (3), 1361-1398. |
| [49] | Von Weizsacker, C. C. (1980): “A Welfare Analysis of Barriers to Entry,” The Bell Journal of Economics, 11 (2), 399-420. |
| [50] | Weill, P.‐O. (2007): “Leaning Against the Wind,” Review of Economic Studies, 74 (4), 1329-1354. 10.1111/j.1467-937X.2007.00451.x · Zbl 1206.91063 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
