Open AccessHeterogeneity in decentralized asset markets
Author(s) -
Hugonnier Julien,
Lester Benjamin,
Weill PierreOlivier
Publication year - 2022
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te4796
Subject(s) - asset (computer security) , microeconomics , characterization (materials science) , economics , econometrics , distribution (mathematics) , mathematical economics , welfare , computer science , mathematics , market economy , mathematical analysis , materials science , computer security , nanotechnology
We study a canonical model of decentralized exchange for a durable good or asset, where agents are assumed to have time‐varying, heterogeneous utility types. Whereas the existing literature has focused on the special case of two types, we allow agents' utility to be drawn from an arbitrary distribution. Our main contribution is methodological: we provide a solution technique that delivers a complete characterization of the equilibrium, in closed form, both in and out of the steady state. This characterization offers a richer framework for confronting data from real‐world markets and reveals a number of new economic insights. In particular, we show that heterogeneity magnifies the impact of frictions on equilibrium outcomes and that this impact is more pronounced on price levels than on price dispersion and welfare.