Economic Theory

, Volume 50, Issue 3, pp 603–634 | Cite as

Transaction costs and planner intervention

  • Matthew HoelleEmail author
Research Article


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.


Constrained suboptimality Convex transaction costs Regularity Policy intervention Anonymity Fiscal balance 

JEL Classification

D53 G11 H21 H23 


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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

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

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