Equilibrium under price controls with endogenous transactions costs |
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Affiliation: | 1. University of Passau, Department of Economics, Innstrasse 29, 94032 Passau, Germany;2. University of Namur, Faculty of Economics / CRED, Rempart de la Vierge 8, 5000 Namur, Belgium;3. GIGA, Neuer Jungfernstieg 21, 20354 Hamburg, Germany;4. Erasmus University Rotterdam, Burgemeester Oudlaan 50, 3062 PA Rotterdam, Netherlands and IZA, Schaumburg-Lippe-Straße 5-9, 53113 Bonn, Germany;1. Paris School of Economics — INRA, France;2. Paris School of Economics, France;3. INSEE, France |
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Abstract: | In this paper we present an equilibrium model for an exchange economy with fixed prices and endogenously determined search or transactions costs. Given the fixed prices, endogenously determined equilibrium buying and selling prices (which include transactions costs) result. These costs occur on either the demand or supply side of each market, but not both. We see an eventual application of this approach to an evaluation of welfare costs of either economy-wide wage and price controls, or sector-specific price controls such as energy. In the final section we present some simple numerical examples which illustrate the approach. |
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