Working Paper: NBER ID: w22056
Authors: Weerachart T. Kilenthong; Robert M. Townsend
Abstract: We show how bundling, exclusivity and additional markets internalize fire sale and other pecuniary externalities. Ex ante competition can achieve a constrained efficient allocation. The solution can be put rather simply: create segregated market exchanges which specify prices in advance and price the right to trade in these markets so that participant types pay, or are compensated, consistent with the market exchange they choose and that type's excess demand contribution to the price in that exchange. We do not need to identify and quantify some policy intervention. With the appropriate ex ante design we can let markets solve the problem.
Keywords: No keywords provided
JEL Codes: D52; D53; D61; D62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market design (D40) | efficiency (D61) |
| market design (D40) | internalization of externalities (D62) |
| ex ante competition (L13) | constrained efficient allocation (D61) |
| private agents' decisions (L85) | market prices (P22) |
| inefficiencies (D61) | externalities (D62) |
| market solutions (D47) | feasible allocations (D61) |