Reallocation Costs and Efficiency
- (pp. 203-27)
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. (JEL D11, D63, D81)Citation
Salant, Yuval, and Ron Siegel. 2016. "Reallocation Costs and Efficiency." American Economic Journal: Microeconomics, 8 (1): 203-27. DOI: 10.1257/mic.20140262Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D81 Criteria for Decision-Making under Risk and Uncertainty
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