New Economics Papers
on Efficiency and Productivity
Issue of 2005‒06‒19
one paper chosen by

  1. An Efficiency Argument For Balanced Transaction Costs By Maria Arbatskaya

  1. By: Maria Arbatskaya
    Abstract: Transaction costs are usually thought to be a major source of inefficiency because they do not allow efficient trades to take place. One might think that lowering transaction costs is always welfare-improving. This paper argues that, in contrast to conventional wisdom, it may be beneficial to increase transaction costs on one side of the market to balance them with the costs on the other side. In the model, transaction costs imposed on applicants serve as a screening device that substantially reduces evaluation costs. Even when application costs are totally wasteful, they arise endogenously in the equilibrium and can result in a welfare improvement.
    Date: 2005–04

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.