The optimal design of a market (Q1125565)

It is known that many organized markets such as the major world security exchanges limit the number of agents who may execute trade. A theoretical model where such limitation are optimal is presented in the article. A normative perspective on the design of a market and study the structure of the rules of trade that result in efficient allocations in a simple two-period model is taken into consideration. The results of investigations are summarized in four statements. The last one for example is: with uncertainty across periods, efficient mechanisms may involve multiple market makers, and the optimal number of market makers depends on the cost of trading, level of risk aversion, and presence of asymmetric information.