Author: Stephen MartinPublisher:
ISBN:
Category :
Languages : de
Pages : 13
Book Description
The welfare consequences of transactions costs in financial markets
Author: Stephen MartinEquity Markets, Transaction Costs, and Capital Accumulation
Author: Valerie R. BencivengaPublisher: World Bank Publications
ISBN:
Category :
Languages : en
Pages : 60
Book Description
Fee Effects
Author: Kathryn JudgePublisher:
ISBN:
Category :
Languages : en
Pages : 66
Book Description
Intermediaries are a pervasive feature of modern economies. This article draws attention to an under-theorized cost arising from the use of specialized intermediaries -- a systematic shift in the mix of transactions consummated. The interests of intermediaries are imperfectly aligned with the parties to a transaction. Intermediaries seek to maximize their fees, a transaction cost from the perspective of the parties. Numerous factors, including the requirement that a transaction create value in excess of the associated fees to proceed and an intermediary's interest in maintaining a good reputation, constrain an intermediary's tendency to use its influence in a self-serving manner. Nonetheless, these constraints are generally imperfect. As a result, when parties rely upon influential intermediaries, there is often a shift in the total mix of transactions consummated toward the transaction type that yields the greatest fee for the intermediary involved. This “fee effect” does more than influence the allocation of gains from trade. The primary cost takes the form of a foregone gain, that is, the difference between the welfare gains produced by the transaction actually consummated and the greater gains that would have been produced had the transaction type not been biased by the intermediary's self interest. Moreover, reliance upon financial intermediaries can give rise to externalities, altering how capital is allocated in socially costly ways.The article's contributions are two-fold. First, it provides a theoretical framework for assessing an intermediary's tendency and capacity to use its influence in a way that affects the type of transaction consummated. This enables parallels to be drawn across disparate settings. Second, applying that framework, the article shows why fee effects may be particularly great in financial markets. In addition, the article considers ways to address fee effects. As a first step, the article suggests that policymakers and market participants should “follow the fees” to better understand the effects of intermediary influence.
The Welfare Consequences of Transactions Costs in Financial Markets
Author: Stephen MartinPublisher:
ISBN:
Category : Finance
Languages : en
Pages : 36
Book Description
Computing Equilibria in Finance Economies with Incomplete Markets and Transaction Costs
Author: P. Jean-Jacques HeringsPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Transaction costs in financial markets may have important consequences for volumes of trade, asset pricing and welfare. In the economic literature they are often given as one reason for the incompleteness of asset markets, which is a striking example of their potential impact on volumes of trade. We argue that analytical results on the impact of transaction costs are hard to obtain and a computational approach is needed. This paper introduces the first algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets and linear transaction costs on the financial markets. The algorithm is based on the homotopy principle and is able to deal with the two major technical difficulties of the model, namely the existence of non-differentiabilities of agents' asset demands as a function of the asset prices and the existence of locally non-unique equilibria. Several numerical examples give a first glimpse of the impact of transaction costs on the nature of the equilibria. We show that the consequences of transaction costs for volumes of trade and prices can be counterintuitive even for small economic models.
Transaction Costs, Institutions, and Economic Performance
Author: Douglass Cecil NorthPublisher: Ics Press
ISBN: 9781558152113
Category : Economic development
Languages : en
Pages : 32
Book Description
The Myth of Social Cost
Author: Steven N. S. CheungPublisher: Hobart Papers (Paperback)
ISBN:
Category : Business & Economics
Languages : en
Pages : 108
Book Description
For over 50 years economists have argued that where private costs or benefits differ from social costs or benefits - in noise, smells, congestion, pollution of the environment - there is a 'clear case' for government intervention to correct the divergence. This argument has been used to justify almost endless intervention. However, the original analysts of social costs/benefits were led into error by failing to test their propositions against the evidence of real life. Painstaking empirical studies clearly demonstrate these errors. A divergence between private and social cost is no decisive justification for government action to correct it. The costs of intervention often outweigh the social benefits. Moreover, the alleged 'externalities' are merely uncontracted effects. Under private property rights, the use of contracts to transact what have been regarded as 'external' effects is far more common than has been commonly recognised.
Financial Innovations in a World with Limited Commitment
Author: Saroj DhitalFinancial Infrastructure, Group Interests, and Capital Accumulation
Author: Biaggio BossonePublisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 42
Book Description
This study presents a theory of financial infrastructure - or the set of rules, institutions, and systems within which agents carry out financial transactions. It investigates the effects of financial infrastructure development on financial architecture and real capital accumulation, taking into account financial-sector special interests. It shows that a more developed infrastructure promotes financial market growth, reduces the scope of traditional banking, and helps investors make more efficient investment decisions. The theory presented explains why traditional banking predominates in the early stages of economic development and becomes relatively less important as the economy develops, and why banks may retard financial sector development. The study provides evidence in support of its predictions.
Finance, Financial Sector Policies, and Long-run Growth
Author: Asli Demirguc-KuntPublisher: World Bank Publications
ISBN:
Category : Access to Finance
Languages : en
Pages : 82
Book Description
Abstract: The first part of this paper reviews the literature on the relation between finance and growth. The second part of the paper reviews the literature on the historical and policy determinants of financial development. Governments play a central role in shaping the operation of financial systems and the degree to which large segments of the financial system have access to financial services. The paper discusses the relationship between financial sector policies and economic development.