, Volume 32, Issue 1, pp 101-121
Date: 16 May 2008

Uniform trade rules for uncleared markets

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Abstract

We analyze markets in which the price of a traded commodity is such that the supply and the demand are unequal. Under standard assumptions, the agents then have single peaked preferences on their consumption or production choices. For such markets, we propose a class of Uniform trade rules each of which determines the volume of trade as the median of total demand, total supply, and an exogenous constant. Then these rules allocate this volume “uniformly” on either side of the market. We evaluate these “trade rules” on the basis of some standard axioms in the literature. We show that they uniquely satisfy Pareto optimality, strategy proofness, no-envy, and an informational simplicity axiom that we introduce. We also analyze the implications of anonymity, renegotiation proofness, and voluntary trade on this domain.

We gratefully acknowledge İpek Gürsel Tapkıfor a very useful observation. We also thank William Thomson, Tayfun Sönmez, Utku Ünver, and Anirban Kar as well as the seminar participants at SabancıUniversity, Koç University, ASSET 2004, SED 2004, and the Murat Sertel Memorial Conference on Economic Theory for their comments and suggestions on an earlier version of this paper. The first author gratefully acknowledges the research support of the Turkish Academy of Sciences via a TUBA-GEBIP fellowship.