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Trade Using Assets which are Divisible at a Cost

Working Paper 288 | Published March 1, 1986

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Trade Using Assets which are Divisible at a Cost


The consequences of costly divisibility of assets are studied using a model with the following features. The demand for assets is generated from an overlapping generations model with a continuum of agents in each generation and with intra-generation trade (intermediation) ruled out. There is a once-for-all supply of a stock of nonnegative-dividend assets in a large size, and there is a costly technology for dividing them into smaller sizes. Stationary equilibria are shown to exist. In contrast with similar models with costless divisibility of assets, competitive equilibria are not necessarily desirable; there can be Pareto-ordered equilibria.

Published in _Journal of Economic Theory_ (Vol. 43, Iss. 2, December 1987, pp. 223-251),