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Max Blouin - One of the best experts on this subject based on the ideXlab platform.
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Equilibrium in a Decentralized Market with adverse selection
Economic Theory, 2003Co-Authors: Max BlouinAbstract:This paper deals with trade volume and distribution of surplus in Markets subject to adverse selection. In a model where two qualities of a good exist, I show that if trade is Decentralized (i.e. conducted via random pairwise meetings of agents), then all units of the good are traded, and all agents have positive ex-ante expected payoffs. This feature is present regardless of the quality distribution, and persists in the limit as discounting is made negligible. This offers a sharp contrast to models of centralized trade with adverse selection (Akerlof, Wilson).
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a Decentralized Market with common values uncertainty non steady states
The Review of Economic Studies, 2001Co-Authors: Max Blouin, Roberto SerranoAbstract:We analyse a Market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the Market is open. We show that information revelation and efficiency never obtain in equilibrium, even as discounting is removed. This holds whether the asymmetry is two-sided or one-sided. In some cases there exist equilibria where a substantial amount goes untraded. This contrasts with the earlier literature, which was based on the steadystate equilibria of a model where agents enter the Market every period.
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equilibrium in a Decentralized Market with adverse selection
Research Papers in Economics, 2001Co-Authors: Max BlouinAbstract:This paper deals with volume of trade and distribution of surplus in Markets subject to adverse selection. The benchmark case -- a variation of Akerlof's lemons model -- is that of a Market where two qualities of a good are offered, in proportions such that, if a single price is required to clear the Market, only the low-quality units of the good are traded. I show that if trade is Decentralized, i.e. allowed to take place at different prices simultaneously in different parts of the Market (via random pairwise meetings of agents), then all units of the good are traded, and all agents have positive ex-ante expected payoffs. This fundamental difference with the centralized benchmark does not diminish as discounting is gradually removed from the Decentralized framework. The result holds for both the steady-state and non-steady-state versions of the model. Cet article traite du volume d'echange et de la distribution des gains dans les marches sujets a la selection adverse. Le point de repere est une variante du modele d'Akerlof (1970) dans laquelle deux qualites differentes d'un bien sont disponibles sur le marche mais une seule, la moindre, n'est vendue a l'equilibre. Je demontre que si le mecanisme d'echange est decentralise, c'est-a-dire que les echanges peuvent s'effectuer a differents prix dans differentes parties du marche (via l'appariement aleatoire des agents), alors toutes les unites du bien seront vendues a l'equilibre, peu importe leur qualite. De plus, tous les agents ont un paiement anticipe positif au depart. Ces differences fondamentales avec les resultats d'Akerlof ne s'effacent pas lorsque l'escomptage des paiements dans le marche decentralise est graduellement elimine. Ce resultat est obtenu dans deux versions du modele decentralise: une avec etats stationnaires, l'autre sans.
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a Decentralized Market with common values uncertainty non steady states
Research Papers in Economics, 1998Co-Authors: Max Blouin, Roberto SerranoAbstract:We analyse a Market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the Market is open. We show that information revelation and efficiency never obtain in equilibrium, even as discounting is removed. This holds whether the asymmetry is two-sided or one-sided. In some cases there exist equilibria where a substantial amount goes untraded. This contrasts with the earlier literature, which was based on the steadystate equilibria of a model where agents enter the Market every period.(This abstract was borrowed from another version of this item.)
Amnon Rapoport - One of the best experts on this subject based on the ideXlab platform.
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tacit coordination in a Decentralized Market entry game with fixed capacity
Experimental Economics, 2002Co-Authors: Rami Zwick, Amnon RapoportAbstract:We focus on a class of Market entry games in which a newly emergent Market opportunity may be fruitfully exploited by no more than a commonly known, exogenously determined number of firms. Our results show significant effects of the parameters manipulated in the study, namely, the Market capacity, entry fee, and method of subject assignment to groups (fixed vs. random). In contrast to previous Market entry games with linear payoff functions, we find no evidence of convergence to equilibrium play on the aggregate level. Shifting the focus of the analysis from the aggregate to the individual level, four clusters of subjects are identified. The patterns are: (1) choice of the same action that is independent of the parameters of the game or the outcome of previous presentations of the same game; (2) random choices with probabilities prescribed by the equilibrium solution for risk-neutral players; (3) random choices with probabilities equal to the individual observed overall proportion of entry; and (4) sequential dependencies that violate any model that assumes randomization. Subjects in the fourth and largest category are shown to adjust their choices in accordance with a simple principle of strategic reasoning.
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tacit coordination in a Decentralized Market entry game with fixed capacity
Social Science Research Network, 2002Co-Authors: Rami Zwick, Amnon RapoportAbstract:We focus on a class of Market entry in which a newly emergent Market opportunity may be fruitfully exploited by no more than a commonly known, exogenously determined number of firms. Our results show significant effects of the parameters manipulated in the study, namely, the Market capacity, entry fee, and method of subject assignment to groups (fixed vs. random). In contrast to previous Market entry games with linear payoff functions, we find no evidence of convergence to equilibrium play on the aggregate level. Shifting the focus of the analysis from the aggregate to the individual level, four clusters of subjects are identified. The patterns are: (1) choice of the same action that is independent of the parameters of the game or the outcome of previous presentations of the same game; (2) random choices with probabilities prescribed by the equilibrium solution for risk-neutral players; (3) random choices with probabilities equal to the individual observed overall proportion of entry; and (4) sequential dependencies that violate any model that assumes randomization. Subjects in the fourth and largest category are shown to adjust their choices in accordance with a simple principle of strategic reasoning.
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tacit coordination in a Decentralized Market entry game with fixed capacity
Research Papers in Economics, 1999Co-Authors: Rami Zwick, Amnon RapoportAbstract:Tacit coordination is studied experimentally in a class of iterated Market entry games with a relatively small number of potential entrants (n = 6), symmetric players, and fixed entry fees. These games are intended to simulate a situation where a newly emergent Market opportunity may be fruitfully exploited by no more than a fixed and commonly known number of firms. Our results indicate a high degree of sensitivity to the game parameters that are manipulated in the study, namely, the Market capacity, entry fee, and method of subject assignment to groups (fixed vs. random), as well as sophisticated adaptation to actual and hypothetical changes in wealth level. We find no support for convergence to equilibrium play on either the aggregate or individual level or for any trend across rounds of play to maximize total group payoff by lowering the frequency of entry. The coordination failure is attributed to certain features of the payoff function that induce strong competition in the attempt to penetrate the Market.
Felipe Zurita - One of the best experts on this subject based on the ideXlab platform.
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on the limits to speculation in centralized versus Decentralized Market regimes
Social Science Research Network, 2003Co-Authors: Felipe ZuritaAbstract:Speculation creates an adverse selection cost for utility traders, who will choose not to trade if this cost exceeds the benefits of using the asset Market. However, if they do not participate, the Market collapses, since private informational one is not suffcient to create a motive for trade. There is, therefore, a limit to the number of speculative transactions that a given Market can support. This paper compares this limit inDecentralized, monopoly - intermediated and competitively - intermediated Market regimes, finding that the second regime is best equipped to deal with speculation: an informed monopolist canp rice - discriminate investors and thus always avoid Market breakdowns. These regimes are also compared in terms of welfare and trading volume. The analysis suggests a reason for the presence of intermediaries in financial Markets.
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on the limits to speculation in centralized versus Decentralized Market regimes
Research Papers in Economics, 2001Co-Authors: Felipe ZuritaAbstract:Speculation creates an adverse selection cost for utility traders, who will choose not to trade if this cost exceeds the benefits of using the asset Market. However, if they do not participate, the Market collapses, since private information alone is not sufficient to create a motive for trade. Therefore, there is a limit to the amount of speculative transactions that a given Market can support. We compare this limit in Decentralized versus centralized Market regimes, finding that the centralized regime is more prone to speculation than the Decentralized one: the transaction fees charged by an intermediary diminish the individual return to information, so that for a fixed value of trading, more speculative transactions can be supported. The analysis also suggests a reason for the existence of intermediaries in financial Markets.
Alessandro Gavazza - One of the best experts on this subject based on the ideXlab platform.
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an empirical equilibrium model of a Decentralized asset Market
Research Papers in Economics, 2016Co-Authors: Alessandro GavazzaAbstract: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. Moreover, dealers reduce aggregate welfare because their operations are costly, and they impose a negative externality by decreasing the number of agents' direct transactions.
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an empirical equilibrium model of a Decentralized asset Market
Econometrica, 2016Co-Authors: Alessandro GavazzaAbstract:I estimate a search-and-bargaining model of a Decentralized Market to quantify the effects of trading frictions on asset allocations and asset prices, and to quantify the effects of intermediaries that facilitate trade. Using business aircraft data, I find that, relative to the Walrasian benchmark, 12.4-percent of the assets are misallocated and prices are approximately 27.3-percent lower. Dealers play an important role in reducing frictions: in a Market with no dealers, 15.7-percent of the assets would be misallocated. Perhaps surprisingly, in a Market with no dealers prices would increase by 2.8-percent, because sellers’ outside options improve relative to buyers’, thus counteracting the effects of higher search costs and slower trade on asset prices.
Seyed Hamid Hosseini - One of the best experts on this subject based on the ideXlab platform.
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dynamic model for Market based capacity investment decision considering stochastic characteristic of wind power
Renewable Energy, 2011Co-Authors: Masoud Hasanimarzooni, Seyed Hamid HosseiniAbstract:This paper proposes a Decentralized Market-based model for long-term capacity investment decisions in a liberalized electricity Market with significant wind power generation. In such an environment, investment and construction decisions are based on price signal feedbacks and imperfect foresight of future conditions in electricity Market. System dynamics concepts are used to model structural characteristics of power Market such as, long-term firms’ behavior and relationships between variables, feedbacks and time delays. For conventional generation units, short-term price feedback for generation dispatching of forward Market is implemented as well as long-term price expectation for profitability assessment in capacity investment. For wind power generation, a special framework is proposed in which generation firms are committed depending on the statistical nature of wind power. The method is based on the time series stochastic simulation process for prediction of wind speed using historical and probabilistic data. The auto-correlation nature of wind speed and the correlation with demand fluctuations are modeled appropriately. The Monte Carlo simulation technique is employed to assess the effect of demand growth rate and wind power uncertainties. Such a decision model enables the companies to find out the possible consequences of their different investment decisions. Different regulatory policies and Market conditions can also be assessed by ISOs and regulators to check the performance of Market rules. A case study is presented exhibiting the effectiveness of the proposed model for capacity expansion of electricity Markets in which the Market prices and the generation capacities are fluctuating due to uncertainty of wind power generation.
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dynamic assessment of capacity investment in electricity Market considering complementary capacity mechanisms
Energy, 2011Co-Authors: Masoud Hasani, Seyed Hamid HosseiniAbstract:This paper proposes a Decentralized Market-based model for long-term capacity investment decisions in a liberalized electricity Market. Investment decisions are fundamentally based on total revenues gained by investors. In most electricity Markets, the complementary mechanisms are designed to ensure a desired level of reliability while covering investment costs of the suppliers. In such an environment, investment decisions are highly sensitive to expectation of price signals in both of energy Market and capacity mechanisms. In this work, the system dynamics concepts are used to model the structural characteristics of electricity Market such as, long-term firms’ behavior and relationships between variables, feedbacks, and time delays by appropriately bundling the energy Market and capacity mechanisms. The Market oriented capacity price as well as non-competitive capacity payments and a proposed hybrid capacity mechanism are linked with the energy Market in the model. Such a decision model enables both the generation companies and the regulators gaining perfect insights into the possible consequences of different decisions they make under different policies and Market conditions. In order to examine the performance of the electricity Market with different capacity mechanisms, a case study is presented which exhibits the effectiveness of the proposed model.
