Perishable Goods versus Re-tradable Assets: A Theoretical Reappraisal of a Fundamental Dichotomy

TL;DR

This paper reevaluates the fundamental differences between markets for perishable goods and re-tradable assets, highlighting how asset re-tradability impacts market stability and efficiency through a theoretical lens.

Contribution

It introduces a new theoretical perspective on the asset re-tradability concept, reformulating key theorems to emphasize its fundamental role in market behavior.

Findings

Markets for re-tradable assets are less stable and efficient than for perishable goods.

Reformulation of no-trade and no-arbitrage theorems underscores the importance of re-tradability.

Theoretical analysis clarifies the core differences in market dynamics for different asset types.

Abstract

Experimental results on market behavior establish a lower stability and efficiency of markets for durable re-tradable assets compared to markets for non-durable, or perishable, goods. In this chapter, we revisit this known but underappreciated dichotomy of goods in the light of our theory of competitive market price formation, and we emphasize the fundamental nature of the concept of asset re-tradability in neoclassical finance through a simple reformulation of the famous no-trade and no-arbitrage theorems.