Reallocation costs and efficiency

Yuval Salant, Ron Siegel

Research output: Contribution to journalArticlepeer-review

Abstract

We study the efficient allocation of a divisible asset when reallocation is costly. Two players initially divide an asset between them. At the time of this initial division the players' valuations for the asset are uncertain. After the uncertainty resolves, costly reallocation may take place. We first establish that the surplus associated with efficient reallocation monotonically increases or decreases in the concentration of the initial division for a wide range of cost specifications. We then characterize how the budget necessary to implement the efficient reallocation changes with the initial division.

Original languageEnglish (US)
Pages (from-to)203-227
Number of pages25
JournalAmerican Economic Journal: Microeconomics
Volume8
Issue number1
DOIs
StatePublished - Jan 1 2016

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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