Competitive search with two-sided risk aversion

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Show simple item record Jerez, Belén
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía 2022-03-15T18:48:31Z 2022-03-15T18:48:31Z 2022-03-15
dc.identifier.issn 2340-5031
dc.description.abstract We analyze a static competitive search model where risk-averse individuals with different wealth levels trade an indivisible good. The real estate market is a particularly relevant application. We show that the equilibrium is constrained efficient. Other properties of the equilibrium are derived, including the generalized version of the Hosios (1990) rule for this environment. Under risk aversion, buyers and sellers evaluate the trade-off between prices and trading probabilities differently as their wealth increases. As they become richer, buyers are relatively less concerned about paying higher prices and more concerned about increasing their trading probability. Conversely, richer sellers care less about increasing the probability of a sale than poorer sellers, and they care more about trading at a higher price. This results in positive sorting inequilibrium, that is, wealthier (poorer) buyers and sellers trading with each other. As transactions among wealthier agents involve higher prices, the equilibrium features frictional price dispersion. By contrast, with transferable utility, all individuals would trade at the same price, irrespectively of their wealth.
dc.language.iso eng
dc.relation.ispartofseries Working paper. Economics
dc.relation.ispartofseries 22-03
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.subject.other Competitive/Directed search
dc.subject.other Risk aversion
dc.subject.other Wealth heterogeneity
dc.subject.other Constrained efficiency
dc.subject.other Sorting
dc.title Competitive search with two-sided risk aversion
dc.type workingPaper
dc.subject.jel D50
dc.subject.jel D61
dc.subject.jel D83
dc.identifier.uxxi DT/0000001990
dc.affiliation.dpto UC3M. Departamento de Economía
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