, Volume 45, Issue 1-2, pp 65-97

Financial markets with endogenous transaction costs

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Abstract

The paper proposes an alternative general equilibrium formulation of financial asset economies with transaction costs. Transaction costs emerge endogenously at equilibrium and reflect agents’ decisions of intermediating financial activities at the expense of providing labor services.

The financial support of the GIP ANR (project “croyances”) and of the Fondation du Risque (chaire Groupama) is gratefully acknowledged. We would like to thank two anonymous referees for their constructive criticism and suggestions which further helped us to improve the scope and clarity of the paper. We are grateful to Luis H. Braido, Felix Kubler, Matthew Hoelle, Tobias Markeprand, Michael Magill, Martine Quinzii and Karl Schmedders for valuable discussions and helpful comments.