Monopolistic security design in finance economies

Authors
Citation
K. Schmedders, Monopolistic security design in finance economies, ECON THEORY, 18(1), 2001, pp. 37-72
Citations number
22
Categorie Soggetti
Economics
Journal title
ECONOMIC THEORY
ISSN journal
09382259 → ACNP
Volume
18
Issue
1
Year of publication
2001
Pages
37 - 72
Database
ISI
SICI code
0938-2259(200106)18:1<37:MSDIFE>2.0.ZU;2-6
Abstract
The purpose of this paper is to analyze endogenous asset innovation by an e ntrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market mak er has the technology to introduce a new option into the economy and charge investors proportional transaction fees if they trade on the exchange. The market maker's objective is to choose the security and transaction fee tha t maximize revenues when opening the exchange. A computational analysis of this problem is necessary since there are no interesting models with closed -form solutions. We compute the price and welfare effects of the option int roduction.