We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
ON THE TRADE OFF BETWEEN DEFICIT AND INEFFICIENCY AND THE DOUBLE AUCTION WITH A FIXED TRANSACTION FEE.
- Authors
Tatur, Tymon
- Abstract
In many trading environments, any incentive compatible and individually rational market mechanism will be either inefficient or will run a deficit. We prove that as the market size m gets large, for any fixed surplus (or deficit) x, m times the minimal absolute inefficiency converges to c(x) where c(.) is essentially a quadratic function of x. We introduce a new mechanism, the double auction with a fixed transaction fee. By choosing the size of the fee appropriately, any level of deficit or surplus can be implemented and the resulting mechanisms achieve the above bound. Corollaries include: an asymptotic version of the Myerson-Satterthwaite Impossibility Theorem; a description of the minimal subsidy required to implement the efficient trading rule; a characterization of the minimal inefficiency obtainable with budget- balanced market mechanisms; recommendations on the optimal organization of trade; and insights on the effects of taxation.
- Subjects
TAXATION; PUBLIC finance; IMPOSSIBILITY of performance; BUSINESS; BALANCE of trade; COMMERCE
- Publication
Econometrica, 2005, Vol 73, Issue 2, p517
- ISSN
0012-9682
- Publication type
Article
- DOI
10.1111/j.1468-0262.2005.00587.x