nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2005‒06‒19
one paper chosen by
Angelo Zago
Universitá degli Studi di Veroa

  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

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