Working Paper: CEPR ID: DP14827
Authors: Giulia Brancaccio; Myrto Kalouptsidi; Theodore Papageorgiou; Nicola Rosaia
Abstract: In this paper we explore efficiency and optimal policy in decentralized transportation markets that suffer from search frictions, such as taxicabs, trucks and bulk shipping. We illustrate the impact of two externalities: the well-known thin/thick market externalities and what we call pooling externalities. We characterize analytically the conditions for efficiency, show how they translate into efficient pricing rules, as well as derive the optimal taxes for the case where the planner is not able to set prices. We use our theoretical results to explore welfare loss and optimal policy in dry bulk shipping. We find that the constrained efficient allocation achieves 6% welfare gains, while the first-best allocation corresponding to the frictionless world, achieves 14% welfare gains. This suggests that policy can achieve substantial gains, even if it does not alleviate search frictions, e.g. through a centralizing platform. Finally, we demonstrate that simple policies designed to mimic the optimal taxes perform well.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search frictions (F12) | thin/thick market externalities (D49) |
| thin/thick market externalities (D49) | number of agents searching (L85) |
| number of agents searching (L85) | inefficiencies in matching probabilities (C78) |
| pooling externalities (H23) | inefficient composition of trips (R41) |
| optimal taxes and subsidies (H21) | correction of externalities (D62) |
| constrained efficient allocation (D61) | welfare gains (D69) |
| first-best allocation (D61) | welfare gains (D69) |