15 November 2018
The Microeconomics Research Seminar welcomes Simon Loertscher (U Melbourne), who will present his work on
"Equilibrium adjustment dynamics".
Place: Room 250, Allende-Platz 1
Hour: 17:15 - 18:45
We are looking forward to seeing you there!
We study a market in which agents with private information about their values arrive one after another. Each agent is endowed with some units of the asset and has a commonly known maximum demand. As a function of her value and the values of all others, each agent optimally either buys, sells, or consumes his endowment. We show that the equilibrium under the efficient mechanism involves phases of market imbalance during which sellers, or less frequently buyers, are on the long side. We call a market a ``buyers' (sellers') market'' if more types are net buyers (sellers) than in the static Walrasian setup with a continuum of agents. The efficient mechanism involves price rigidity insofar as in a buyers' (sellers') market the prices buyers (sellers) face do not vary with the state of the order book. The efficient adjustment dynamics to out-of-equilibrium states involve ``fire trades'' -- the immediate liquidation of trades whose level exceeds the socially optimal storage threshold -- followed by slow and incremental adjustments to a typical state. Our framework also allows us to analyze optimal policy interventions, whereby a benevolent policymaker, observing the state of the order book, can improve next period's distribution at some cost to society.