Demand Uncertainty, Incomplete Markets, and the Optimality of Rationing |
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Authors: | James Peck |
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Institution: | Department of Economics, The Ohio State University, Columbus, Ohio, 43210 |
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Abstract: | When the arrival of traders at the market is stochastic, and it is impossible for traders who might arrive to meet ex ante, then Walrasian spot-market clearing presents consumers with price-risk and is typically not Pareto optimal. Instead, with an indivisible good and a divisible numeraire, the first-best can be achieved by an “Exchange” selling raffle tickets at a fixed price. When only spot market trading is feasible and consumers cannot commit to pay unless they purchase the indivisible good, efficiency implies price-fixing with rationing. Potential disadvantages of black markets and scalping are discussed.Journal of Economic LiteratureClassification Numbers: D45, D52, D8. |
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