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Reallocation Costs and Efficiency, American Economic Journal: Microeconomics

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.

Type

Article

Author(s)

Yuval Salant, Ron Siegel

Date Published

2015

Citations

Salant, Yuval, and Ron Siegel. 2015. Reallocation Costs and Efficiency. American Economic Journal: Microeconomics. 8(1): 203-227.

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