The Social Costs of Side Trading

Attar, Andrea, Mariotti, Thomas and Salanié, François (2019) The Social Costs of Side Trading. TSE Working Paper, n. 19-1017, Toulouse

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Abstract

We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side
trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold.
First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources
between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2019
Place of Publication: Toulouse
Uncontrolled Keywords: Adverse Selection, Side Trading, Second-Best Allocations.
JEL codes: D43 - Oligopoly and Other Forms of Market Imperfection
D82 - Asymmetric and Private Information
D86 - Economics of Contract - Theory
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 17 Jun 2019 15:00
Last Modified: 17 Jun 2019 15:00
OAI ID: oai:tse-fr.eu:123102
URI: http://publications.ut-capitole.fr/id/eprint/32548

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