Economic Theory

, Volume 50, Issue 3, pp 603–634

Transaction costs and planner intervention

Research Article

DOI: 10.1007/s00199-010-0583-5

Cite this article as:
Hoelle, M. Econ Theory (2012) 50: 603. doi:10.1007/s00199-010-0583-5
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Abstract

In this paper, I examine a two-period general equilibrium model in which transaction costs are incurred whenever financial contracts are traded. These transaction costs are real and convex. The presence of these transaction costs results in a Pareto inefficient equilibrium allocation. Attempting to fix this problem, the planner will intervene by scaling the transaction costs either up or down. The intervention must satisfy fiscal balance meaning that the summed value of transaction costs will remain constant. I prove that over a generic subset of household utility functions and endowments and subject to an upper bound on the number of household types, there exists an open set of planner interventions that lead to a Pareto superior allocation.

Keywords

Constrained suboptimalityConvex transaction costsRegularityPolicy interventionAnonymityFiscal balance

JEL Classification

D53G11H21H23

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.European University Institute, Max Weber ProgrammeSan Domenico di FiesoleItaly