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The coordinating role of a redundant security in frictional markets

Author

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  • HARA, Chiaki

    (Faculty of Economics and Politics, University of Cambridge and Churchill College.)

Abstract

In this paper, we show that even if a redundant security does not have the cost-saving role in markets with transaction costs, it may still be relevant to risk-sharing at equilibrium. We call this the coordinating role of the redundant security. We prove that at least five securities and three states are necessary for one of the securities to have the coordinating role. We also show that even if a redundant security requires a lower transaction cost and actively traded at an equilibrium, it need not be relevant to risk-sharing.

Suggested Citation

  • HARA, Chiaki, 1997. "The coordinating role of a redundant security in frictional markets," LIDAM Discussion Papers CORE 1997058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1997058
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1997.html
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    Cited by:

    1. Hara, Chiaki, 1997. "Welfare analysis of the coordinating role of a redundant security," Economics Letters, Elsevier, vol. 56(3), pages 299-303, November.
    2. Hara, Chiaki, 2000. "Transaction costs and a redundant security: divergence of individual and social relevance1," Journal of Mathematical Economics, Elsevier, vol. 33(4), pages 497-530, May.

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