Welfare Consequences of Information Aggregation and Optimal Market Size

• 成果类型: Article
• 署名作者: Kawakami, Kei
• 署名单位: University of Melbourne
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
• ISSN/ISSBN: 1945-7669
• DOI: 10.1257/mic.20160010
• 发表日期: 2017
• 页码: 303-323
• 关键词: Auctions; exchange; trades

摘要

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing role of markets, which creates a positive externality amongst traders, against (ii) the information-aggregation role of prices, which leads to prices that are more correlated with security payoffs, thereby undermining the hedging function of markets. Our analysis indicates that a market with infinitely many traders may not be the right welfare benchmark in the presence of risk aversion and information aggregation.