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Search Frictions and Efficiency in Decentralized Transport Markets

Author

Listed:
  • Giulia Brancaccio

    (Cornell University)

  • Myrto Kalouptsidi

    (Harvard University)

  • Theodore Papageorgiou

    (Boston College)

  • Nicola Rosaia

    (Harvard University)

Abstract

In this paper we explore efficiency and optimal policy in decentralized transportation markets that suffer from search frictions, such as taxicabs, trucks and bulk shipping. We illustrate the impact of two externalities: the well-known thin/thick market externalities and what we call pooling externalities. We characterize analytically the conditions for efficiency, show how they translate into efficient pricing rules, as well as derive the optimal taxes for the case where the planner is not able to set prices. We use our theoretical results to explore welfare loss and optimal policy in dry bulk shipping. We find that the constrained efficient allocation achieves 6% welfare gains, while the first-best allocation corresponding to the frictionless world, achieves 14% welfare gains. This suggests that policy can achieve substantial gains, even if it does not alleviate search frictions, e.g. through a centralizing platform. Finally, we demonstrate that simple policies designed to mimic the optimal taxes perform well.

Suggested Citation

  • Giulia Brancaccio & Myrto Kalouptsidi & Theodore Papageorgiou & Nicola Rosaia, 2020. "Search Frictions and Efficiency in Decentralized Transport Markets," Boston College Working Papers in Economics 1010, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:1010
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    References listed on IDEAS

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    Cited by:

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    2. Lange, Fabian & Papageorgiou, Theodore, 2020. "Beyond Cobb-Douglas: Flexibly Estimating Matching Functions with Unobserved Matching Efficiency," IZA Discussion Papers 13177, Institute of Labor Economics (IZA).
    3. Zakharenko, Roman, 2023. "Pricing shared vehicles," Economics of Transportation, Elsevier, vol. 33(C).

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    More about this item

    Keywords

    search; friction; efficiency; transport; optimal policy;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L0 - Industrial Organization - - General
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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