Title

Retrading, Production, and Asset Market Performance

Document Type

Article

Publication Date

8-31-2015

Abstract

Prior studies have shown that traders quickly converge to the price–quantity equilibrium in markets for goods that are immediately consumed, but they produce speculative price bubbles in resalable asset markets. We present a stock-flow model of durable assets in which the existing stock of assets is subject to depreciation and producers may produce additional units of the asset. In our laboratory experiments inexperienced consumers who can resell their units disregard the consumption value of the assets and compete vigorously with producers, depressing prices and production. Consumers who have first participated in experiments without resale learn to heed their consumption values and, when they are given the option to resell, trade at equilibrium prices. Reproducibility is therefore the most natural and most effective treatment for suppression of bubbles in asset market experiments.

Comments

This article was originally published in Proceedings of the National Academy of Sciences of the United States of America, volume 112, issue 47, in 2015. DOI: 10.1073/pnas.1517038112

Peer Reviewed

1

Copyright

National Academy of Sciences