We study a canonical model of decentralized exchange for durable good or asset, where agents are assumed to have time‐varying, heterogeneous utility types. Whereas the existing literature has focused on special case two types, we allow agents' be drawn from an arbitrary distribution. Our main contribution is methodological: provide solution technique that delivers complete characterization equi...

We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the economy and thus would like to make bets against each other. In the incomplete-markets economy, agents cannot make such bets. Asset price volatility is very small. The situation changes dramatically when m...

Almost all real assets trade in decentralized markets, where trading frictions could inhibit the efficiency of asset allocations and depress asset prices. In this paper, I use data on commercial aircraft markets to empirically investigate whether trading frictions vary with the size of the asset market. Intuitively, it is more difficult to sell assets that have a thin market. As a result, firms...

Information acquisition in financial markets is analyzed in an integrated model of information and portfolio choice. Asset returns are assumed to be gamma distributed and signals to be Poisson. A simultaneous rational expectations equilibrium in asset and information markets does exist under fully revealing prices. It entails a strictly positive amount of acquired signals if markets are large, ...

Abstract We report the results of an experiment designed to study the role of institutional structure in the formation of bubbles and crashes in laboratory asset markets. In a setting employing double auctions and call markets as trading institutions, bubbles and crashes are a quite robust phenomenon. The only factor appearing to reduce bubbles is experience across markets. In this study, we em...