inducing liquidity in thin financial markets through combined value trading mechanisms asset pricing theory hypothesizes that investors are only interested in portfolios individual securities are evaluated only in terms of their contribution to portfolio risk and return yet standard financial market design is that of parallel unconnected markets whereby investors cannot submit orders in one market conditional on events in others when markets are thin this exposes them to substantial execution risk fear of ending up with unbalanced portfolios after trading may even keep investors from submitting orders further eroding liquidity and the ability of markets to equilibrate the suggested solution is a portfolio trading mechanism referred to as combined value trading cvt investors are allowed to submit orders for packages of securities and the system matches trades and computes prices by optimally combining portfolio orders in an open book we study the performance of the cvt mechanism experimentally and compare it to the performance of parallel unconnected double auctions in experiments with similar parametrization and either a similar number of subjects or substantially thicker markets we present evidence that our portfolio trading mechanism facilitates equilibration to the extent that the thicker markets do inspection of order submission and trade activity reveals that subjects manage to exploit the direct linkages between markets enabled by the cvt system

political instability corruption and policy formation the case of environmental policy abstract this paper develops a theory of environmental policy formation taking into consideration the degree of corruptibility and political turbulence the predictions that emerge are that the interaction between the two variables is important political instability has a negative effect on the stringency of environmental regulations if the level of corruption is low but a positive effect when the degree of corruption is high corruption reduces the stringency of environmental regulations but the effect disappears as political instability increases the empirical findings are fully consistent with the predictions of the model

the effect of payoff feedback and information pooling on reasoning errors evidence from experimental markets avast literature shows that individuals frequently violate normative principles in reasoning in this paper we report the results of four studies designed to determine if information dissemination in competitive auctions can reduce or even eliminate logical errors in the wason selection task our results show that payoff feedback and exposure to the information flow drive the aggregate behavior toward the normative solution we also found evidence of spillover effects from informed to uninformed traders in one sided combinatorial auctions as well as positive transfer effects from competitive to individual settings

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

a unified framework for dynamic prediction market design recently coinciding with and perhaps driving the increased popularity of prediction markets several novel pari mutuel mechanisms have been developed such as the logarithmic market scoring rule lmsr the cost function formulation of market makers utility based markets and the sequential convex pari mutuel mechanism scpm in this work we present a convex optimization framework that unifies these seemingly unrelated models for centrally organizing contingent claims markets the existing mechanisms can be expressed in our unified framework by varying the choice of a concave value function we show that this framework is equivalent to a convex risk minimization model for the market maker this facilitates a better understanding of the risk attitudes adopted by various mechanisms the unified framework also leads to easy implementation because we can now find the cost function of a market maker in polynomial time by solving a simple convex optimization problem in addition to unifying and explaining the existing mechanisms we use the generalized framework to derive necessary and sufficient conditions for many desirable properties of a prediction market mechanism such as proper scoring truthful bidding in a myopic sense efficient computation controllable risk measure and guarantees on the worst case loss as a result we develop the first proper truthful risk controlled loss bounded independent of the number of states mechanism none of the previously proposed mechanisms possessed all these properties simultaneously thus our work provides an effective tool for designing new prediction market mechanisms we also discuss possible applications of our framework to dynamic resource pricing and allocation in general trading markets

an experimental test of combinatorial information markets while a simple information market lets one trade on the probability of each value of a single variable a full combinatorial information market lets one trade on any combination of values of a set of variables including any conditional or joint probability in laboratory experiments we compare the accuracy of simple markets two kinds of combinatorial markets a call market and a market maker isolated individuals who report to a scoring rule and two ways to combine those individual reports into a group prediction we consider two environments with asymmetric information on sparsely correlated binary variables one with three subjects and three variables and the other with six subjects and eight variables thus 256 states

is environmental policy a secondary trade barrier an empirical analysis should international trade agreements be extended to include negotiations over environmental policy the answer depends on whether countries distort levels of environmental regulations as a secondary means of providing protection to domestic industries our results suggest that they do previous studies of this relationship have treated the level of environmental regulation as exogenous and found a negligible correlation between environmental regulation and trade flows in contrast we find that when the level of environmental regulation is modelled as an endogenous variable its estimated effect on trade flows is significantly higher than previously reported jel classification fl f14 f18 est ce que la politique environnementale est une barriere commerciale secondaire une analyse empirique est ce que les accords commerciaux internationaux doivent etre etendus pour couvrir la politique environnementale la reponse depend du degre de distorsion que les pays introduisent dans leur politique environnementale pour proteger leurs industries nationales nos resultats suggerent que cet impact est important des etudes anterieures de cette relation ont traite la politique environnementale comme exogene et ont montre qu il existe une co relation negligeable entre politique envir onnementale et flux commerciaux au contraire nous revelons que quand la politique environnementale est consideree comme variable endoge ne son effet sur les flux com merciaux est plus eleve de maniere significative que ce qu on a note anterieurement

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

a limit of bilateral contracting institutions i introduction the double auction da institution has a solid and deserved reputation as the archetypal efficient market institution beginning with smith 1962 30 years of experimental research shows that the da achieves very high and stable efficiency for a wide variety of underlying market structures davis and holt 1993 the da resembles many naturally occurring market institutions including some of the world s largest financial exchanges in the da any agent may at any time unilaterally make a price quantity quote to other agents revise his or her quote or accept an outstanding quote made by another agent these actions occur publicly at some central location whether spatial or electronic so all traders may continuously view quote and contract activity in both the field and the laboratory these basic rules are often augmented with bid ask improvement rules variations on the display of bid ask queues or books limit orders and so on many of these augmentations improve the da s price stability and trading efficiency smith and williams 1982 but more recent studies e g banks et al 1989 van boening and wilcox 1996 show that the da has its limits in particular it fails to produce stable and efficient allocations when market structures contain nonstandard preferences and or technological features particularly when markets are relatively thin in our own previous work the nonconvexity of batch production was the source of the difficulty walrasian equilibria do not always exist in this case and the da is inefficient in those situations this article describes our attempt to generalize the da institution so that it might encourage efficient nonuniform pricing in such situations taken at face value this attempt must be judged a failure and other past attempts to solve this problem durham et al 1996 archibald et al 2002 have not been wholly satisfying either yet examination of these results and the process of elimination strongly suggest that an implicit restriction to bilateral contracting is an essential part of the received da s limitations as we have briefly described it the da may initially appear to be the very essence of free contracting but it does not provide a mechanism whereby three or more agents may simultaneously negotiate and then enter into a mutually agreeable multiagent contract all contracts are necessarily bilateral ones under the da and in fact under almost all conventional marketlike institutions in market structures where preferences and technologies are convex the restriction to bilateral contracts is generally unimportant but when nonconvexities are severe it may be impossible to reliably achieve efficiency under the constraint of bilateral contracting telser 1987 in this article we show this is true even if the da is modified so that bilateral negotiation and contracting possibilities are made particularly rich we believe these results have important policy implications privatization and deregulation initiatives have gained momentum around the globe over the past 20 years and many economists including us have little doubt of their potential for good nonetheless poorly articulated calls for regulation by the market carry an unnecessary potential for harm although the possible institutional rules governing negotiation and contracting under private property come in nearly infinite varieties regulation by the market typically means the adoption of traditional bilateral contracting institutions like the da yet there are good theoretical reasons to doubt that these are always the best choice telser 1987 and accumulating experimental evidence supports these doubts moreover there are now promising alternatives to traditional bilateral contracting institutions that outperform the da in several nonstandard structural situations bossaerts et al 2002 bykowski et al 2000 ishikida et al 2001 we conclude that calls for regulation by the market are sometimes too vague to unambiguously serve the public interest

green havens and pollution havens we test for pollution haven effects in outward foreign direct investment fdi for different sectors using a comprehensive and exhaustive data set for outward fdi from the netherlands one of the most environmentally stringent countries and a major source of global fdi our evidence suggests that in the sectors natural resources extraction and refining construction retail food processing beverages and tobacco and utilities a less stringent environmental policy in the host country significantly attract fdi what is important for these pollution haven effects is not only regulation but also enforcement of environmental policy in contrast to earlier results it is not only footloose industries that display pollution haven effects but also the traditional pollution intensive industries but for the machines electronics and automotive and transportation and communication sectors a more stringent and better enforced environmental policy attracts more fdi as this may help their reputation for sustainable management and csr these sectors display green haven effects these findings have important implications for the sector distribution of fdi in destination countries

do natural resources attract nonresource fdi abstract a new and extensive panel of outward nonresource and resource fdi is used to investigate the effect of natural resources on the different components of fdi our main findings are as follows first for countries which were not a resource producer before a resource discovery causes nonresource fdi to fall 16 in the short run and by 68 in the long run second for countries that were already a resource producer a doubling of resource rents induces a 12 4 fall in nonresource fdi third on average the contraction in nonresource fdi outweighs the boom in resource fdi aggregate fdi falls by 4 if the resource bonanza is doubled finally these negative effects on nonresource fdi are amplified through the positive spatial lags in nonresource fdi we also find that resource fdi is vertical whereas nonresource fdi is of the export fragmentation variety our main findings are robust to different measures of resource reserves and the oil price and to allowing sample selection bias

an empirical investigation of the pollution haven effect with strategic environment and trade policy abstract using a new dataset on the stringency and enforcement of environmental policy this study is the first to find robust confirmation of a pollution haven effect in a cross country context by accounting for strategically determined environment trade and intellectual property right ipr policies a simple game theoretic approach to policy determination is described which suggests an identification strategy based on other country characteristics it is found that for the top 20th percentile of countries in terms of growth in u s multinational affiliate value added as much as 8 6 of that growth between 1999 and 2003 can be attributed to declining relative stringency and enforcement of environmental policy the results are robust to a number of identification tests weak iv tests and third country spatial effects further evidence is found that relatively footloose industries are more likely to be affected by environmental policy than more traditionally dirty industries and enforcement of environmental policies tends to be a more important deterrent than the stringency of the policy set

the significance of the market portfolio the market portfolio is in one sense the least important portfolio to provide to investors in an j agent one period stochastic endowment economy where preferences are quadratic a social welfare minded contract designer would never create a contract that would allow trading the market portfolio even the complete set of contracts all j 1 of them which achieve a first best solution never span the market portfolio these conclusions rely on the assumption that the contract designer has perfect information about agents utilities we also show that as the contract designer s information about agents utilities becomes more imperfect the optimal contracts approach contracts that weight individual endowments in proportion to elements of eigenvectors of the variance matrix of endowments then if there is a strong enough market component to endowments a portfolio approximating the market portfolio may be the most important portfolio

a computational general equilibrium model with endogenous unemployment an analysis of the 1980 fiscal reform in mexico abstract in this paper we develop a general equilibrium model of the mexican economy in which unemployment and government deficits play important roles the unemployment rate depends on a downwardly rigid real wage in the urban sector the government runs a deficit simply by selling bonds that consumers consider perfect substitutes for physical capital as savings instruments the model is used to analyze the impact of the 1980 fiscal reform the presence of the rigid real wage and alternative specifications of government policies regarding the size of the deficit are found to have significant effects on the comparative statics results whether or not the reform improves the welfare of rural households compared to urban households for example depends on whether government policy is to keep the deficit constant or keep expenditures constant in response to changes in tax revenues

footloose and pollution free in numerous studies economists have found little empirical evidence that environmental regulations affect trade flows in this paper we propose and test several common explanations for why the effect of environmental regulations on trade may be difficult to detect we demonstrate that whereas most trade occurs among industrialized economies environmental regulations have stronger effects on trade between industrialized and developing economies we find that for most industries pollution abatement costs are a small component of total costs and are unrelated to trade flows in addition we show that those industries with the largest pollution abatement costs also happen to be the least geographically mobile or footloose after accounting for these distinctions we measure a significant effect of pollution abatement costs on imports from developing countries and in pollution intensive footloose industries

implications of an index contingent trading mechanism this article analyzes a call market that enables conditioning not only on an asset price but also on an index a weighted average of stock prices that is determined simultaneously with the prices of all assets the authors compare two trading systems with and without index conditioning and find that in the system with index conditioning traders indeed use the facility of index conditioning there is more depth liquidity in the market price fluctuations around true values are lower expected trading costs of liquidity traders are lower and the expected utility of informed traders is lower than in a system without index conditioning copyright 1997 by university of chicago press

the efficiency gains from dynamic tax reform this paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general equilibrium rational expectations growth path of life cycle economies the principal findings concern the effects of switching from a proportional income tax with rates similar to those in the u s to either a proportional tax on consumption or a proportional tax on labor income a switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources in contrast a transition to wage taxation generates a loss of greater than percent of lifetime re sources a second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost this abstract was borrowed from another version of this item

models for bundle trading in financial markets abstract bundle trading is a new trend in financial markets that allows traders to submit consolidated orders to sell and buy packages of assets we propose a new bundle based market clearing formulation for portfolio balancing that extends the previous models in the literature through a more detailed representation of portfolios and the formulation of new bidding requirements we also present post optimality tie breaking procedures intended to discriminate between equivalent orders on the basis of submission times numerical results evaluate the bundle effect as well as the bidding flexibility and the computational complexity of the formulation

allocating uncertain and unresponsive resources an experimental approach we identify an important class of economic problems that arise naturally in several applications the allocation of multiple resources when there are uncertainties in demand or supply unresponsive supplies no inventories and fixed capacities and significant demand indivisibilities rigidities examples of such problems include scheduling job shops airports or supercomputers zero inventory planning and the allocation and pricing of nasa s planned space station using experimental methods we show that the two most common organizations used to deal with this problem markets and administrative procedures can perform at very low efficiencies 60 65 efficiency in a seemingly robust example thus there is a need to design new mechanisms that more efficiently allocate resources in these environments we develop and analyze two mechanisms that arise naturally from auctions used to allocate single dimensional goods these new mechanisms involve computer assisted coordination made possible by the existence of networked computers both mechanisms significantly improve on the performance of administrative and market procedures

using survey data to assess the distributional effects of trade policy the author develops and applies a methodology to empirically explore the effects of trade policies on the distribution of income and poverty in developing countries he uses a methodology based on two links one connecting trade policies to prices and another connecting prices to household welfare the author applies the methodology to the study of the distributional effects of mercosur on argentine families the main finding is that mercosur benefits the average argentine household across the entire income distribution there is evidence of a pro poor bias of the regional trade agreement on average poor households gain more from the reform than middle income households whereas the effects on rich families are positive but not statistically significant prior to the reform argentine trade policy protected the rich over the poor and after the reform granted some protection to the poor as relative pre mercosur tariffs are higher on relatively skill intensive goods the tariff removals tend to benefit the poor over the rich these findings indicate that trade reforms may actually help improve the distribution of income and reduce poverty in the country

a trading mechanism contingent on several indices we introduce a trading mechanism where the execution of an order on a security can be made contingent on the relation between the clearing price of the security and the clearing price of one or several indices a mechanism similar to ours but limited to only one index was implemented on the tel aviv stock exchange we argue that it is in some cases crucial to make the execution of an order contingent on several indices our mechanism consists of a particular implementation of a double sided multi unit combinatorial auction with substitutes or dmcs auction which we introduced in an earlier article

the exposure problem and market design markets have an exposure problem when getting to the optimal allocation requires a sequence of transactions which if started but not completed leaves at least one trader with losses we use laboratory experiments to evaluate the effect of the exposure problem on alternative market mechanisms the continuous double auction performs poorly efficiency is only 20 when exposure is high and 55 when it is low a package market effectively eliminates the exposure problem in low and high exposure treatments efficiency is 82 and 89 respectively building on stability notions from matching theory we introduce the concept of mechanism stability a model of trade that combines mechanism stability with noisy best responses and imperfect foresight explains the difference in market performance finally decentralized bargaining with contingent contracts performs well with perfect information and communication but not in the more realistic case when traders preferences are privately known

making eu trade agreements work the role of rules of origin a key element of the eu s free trade and preferential trade agreements is the extent to which they deliver improved market access and so contribute to the eu s foreign policy objectives towards developing countries and neighbouring countries in europe including the countries of the balkans previous preferential trade schemes have been ineffective in delivering improved access to the eu market since only a small proportion of the available preferences have actually been utilised the main reason for this is probably the very restrictive rules of origin that the eu imposes coupled with the costs of proving consistency with these rules if the eu wants the everything but arms agreement and free trade agreements with countries in the balkans to generate substantial improvements in access to the eu market for products from these countries then it will have to reconsider the current rules of origin and implement less restrictive rules backed up by a careful safeguards policy

the welfare impact of trade liberalization i introduction what are the effects of liberalized trade this is a crucial question in the field of international economics the wide consensus among economists is that free trade generates aggregate welfare gains through efficient reallocation of resources and production reduction of prices and exposure to foreign competition in aggregate terms economies that open benefit from doing so numerous studies in the literature have addressed this issue assessing the qualitative and quantitative impact of trade liberalization at the aggregate level examples among many include the works of brown deardorff and stern 1995 and sobarzo 1995 which analyze the effects of the north american free trade agreement nafta on the economies of canada mexico and the united states 1 while there is a relative degree of agreement regarding the overall impact of free trade a topic that has not been analyzed quite as intensively in the literature deals with the distributional effects of trade liberalization reforms on the different types of households that comprise an economy if households differ in terms of income education geographical location or other socio demographic characteristics do these differences imply that they will be asymmetrically affected by a trade liberalization reform while the economy as a whole gains from increased openness some agents might benefit more than others from free trade or more drastically some people might benefit from free trade while others are hurt by it this issue is even more relevant if the trade liberalization process occurs between economies where at least one of the opening countries accounts for a large proportion of the bilateral foreign trade in this article we aim at contributing to this relatively neglected issue in the literature by analyzing the distributional effects of trade liberalization on heterogenous households to address this question we construct a static applied general equilibrium model agem which has been the standard tool adopted to assess the impact of policy reforms because it captures all the complicated linkages between the various agents that comprise an economy by using an agem we are also able to conduct sensitivity analyses and perform additional experiments that explore the implications of alternative trade liberalization arrangements since we explicitly model differentiated households we are therefore able to identify the welfare consequences of trade liberalization on diverse agents in one of the few related studies in the literature porto 2006 analyzes the general equilibrium distributional effects of trade policies using different waves of household survey data to directly estimate the impact of trade on the prices of different goods and factor inputs while the purpose is similar our methodology differs by combining the household survey data and the social accounting matrix sam for calibration of the structural model and then performing numerical experiments to simulate and directly evaluate the general equilibrium distributional effects of different trade reforms in order to quantitatively measure the household impact of liberalized trade we apply our model to the case of slovenia which joined the european union eu in may 2004 along with nine other countries accession to the eu implies among many other things an important transformation for the foreign sector of the slovenian economy in particular the accession requires slovenia to adopt the eu s tariff schedule with the rest of the world and removes its previous tariff structure in principle this implies an enormous trade liberalization reform for slovenia it removes all tariffs with its most important trade partner moreover before joining the eu slovenia was a small open economy characterized by a relatively low tariff schedule by joining the eu slovenia must now adopt a more protectionist tariff profile which will certainly impact its trade patterns

fdi in space spatial autoregressive relationships in foreign direct investment abstract there are a number of theoretical reasons why foreign direct investment fdi into a host country may depend on the fdi in proximate countries such spatial interdependence has been largely ignored by the empirical fdi literature with only a couple recent papers accounting for such issues in their estimation this paper conducts a general examination of spatial interactions in empirical fdi models using data on us outbound fdi activity we find that estimated relationships of traditional determinants of fdi are surprisingly robust to inclusion of terms to capture spatial interdependence even though such interdependence is estimated to be significant however we find that both the traditional determinants of fdi and the estimated spatial interdependence are quite sensitive to the sample of countries one examines

equilibrium discovery and preopening mechanisms in an experimental market we experimentally analyze how to design preopening mechanisms facilitating coordination on high equilibrium liquidity and gains from trade we allow a call auction to be preceded by a preopening or not preopening orders to be binding or not and the opening time to be deterministic or random when the preopening is nonbinding traders place manipulative orders reducing the credibility of preplay communication random market opening deters manipulation but also hinders communication by making it costly gains from trade are maximized when preopening orders are binding this enables some traders to place early limit orders attracting further liquidity data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1787 this paper was accepted by wei xiong finance

agglomeration effects in foreign direct investment and the pollution haven hypothesis does environmental regulation impair international competitiveness of pollution intensive industries to the extent that they relocate to countries with less stringent regulation turning those countries into pollution havens we test this hypothesis using panel data on outward foreign direct investment fdi flows of various industries in the german manufacturing sector and account for several econometric issues that have been ignored in previous studies most importantly we demonstrate that externalities associated with fdi agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis we include the stock of inward fdi as a proxy for agglomeration and employ a gmm estimator to control for endogenous time varying determinants of fdi flows furthermore we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of fdi recipients in the cross section when accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry

external sector closing rules in applied general equilibrium models abstract this paper examines formulations of external sector behavior adopted in some of the recent applied general equilibrium models in many cases these models are constructed for single economies and the model builder attempts to use a convenient external sector specification to close the model issues and difficulties with export demand and import supply functions for foreigners which satisfy trade balance and the modeling of small economy price taking behavior are explored

how does environmental regulation affect production location of non carbon ecological footprint abstract the aim of the paper is to investigate how the location of non carbon ecological footprint home or abroad changes along with environmental regulation ecological footprint measures the amount of biocapacity required to sustain the consumption patterns of human beings employing panel data analysis the relationship between income and footprints that result from domestic production and importsis investigated for 87 countries during the period 2004 2010 within the environmental kuznets curve ekc framework we find that an ekc relationship cannot be validated for income gdp per capita and non carbon footprints of production and of imports besides the analysis shows that countries reach the turning points for import footprint at lower levels of income once stringency of environmental regulation and enforcement of environmental regulation are accounted for environmental regulations push the economic structure towards a cleaner transformation by which resources can be exploited more effectively and short run losses in economic growth can be avoided in the medium and long run conditional on a successful transformation toward higher value added and cleaner production processes

the feasibility of an index contingent trading mechanism auction or call trading systems are used in many stock exchanges an essential problem in the application of these systems is that orders in one security cannot be conditioned on prices of other securities this paper proposes and analyzes the feasibility of an index contingent trading system in this system limit orders may be conditioned on an index any weighted average of the security prices that is determined simultaneously with the prices in addition to the asset price without any assumptions about traders behavior it is shown that under a reasonable restriction on the structure of the limit orders there is a unique solution vector of prices to any set of orders in all securities moreover the paper presents a quick and simple algorithm that converges to the solution this algorithm is based on an extension of the current mechanisms therefore it can be implemented easily in any computerized auction system

a comparison of stock market mechanisms i analyze a multi asset market under two trading mechanisms in the first the unrestricted system traders demand for each asset depends on all equilibrium prices and prices reflect the information contained in all order flows in the second the restricted system traders demand depends on the traded asset price and prices reflect single order flow information i show that informed traders use of multidimensional private information depends on the number of prices they observe and on the price formation process i then give conditions rendering the restricted system more efficient than the unrestricted system