Trading Networks With Frictions
Tamás Fleiner, Ravi Jagadeesan, Zsuzsanna Jankó, Alexander Teytelboym
Econometrica · 2019 · Volume 87 · Issue 5
Abstract
We show how frictions and continuous transfers jointly affect equilibria in a model of matching in trading networks. Our model incorporates distortionary frictions such as transaction taxes and commissions. When contracts are fully substitutable for firms, competitive equilibria exist and coincide with outcomes that satisfy a cooperative solution concept calledtrail stability. However, competitive equilibria are generally neither stable nor Pareto-efficient.
Keywords
Trading networks, frictions, competitive equilibrium, matching with contracts, trail stability, transaction taxes, commissions
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