Knowledge that Transforms

A market composed of pairwise trading under incomplete information is modeled in order to analyze how resources are allocated among competing uses when information about trade gains is incomplete. Contrary to the results from studying a single such trade, sufficient homogeneity across potential trades guarantees that efficiency obtains. This is analogous to simple first-price auctions with homogeneous bidders, where bidders have a common bid function and, as a result, the high bidder also places the highest value on the auctioned object. With enough symmetry, the decentralized bilateral trades in the present model occur as if they were made in a first-price auction that occurs through time. The robustness of the efficiency result to heterogeneities among agents and to nontrivial search intensity decisions is then considered.

A self-interest explanation is presented for opposition by some farm groups to futures markets. During the twenties and thirties political opposition to futures markets was greater in the grain-producing states. The opposition was centered in Minnesota, North Dakota, South Dakota, Montana, and a few other states. The line elevator companies were prominent in these states and not others and used futures prices to facilitate a buying cartel. Futures prices were used to derive a suggested buying price for elevator purchases in each local market. The political opposition to futures by farmers was designed to raise the cost of operating local cartels. Political opposition was greater and gross profit margins of elevators were higher in states with line elevators.

This paper examines the interaction between union wages and the international pattern of production and trade. If union goods are heterogeneous in labor intensity, the introduction of an active union in the domestic country causes only the least labor-intensive range of union goods to be produced there, with goods of greatest labor intensity produced abroad because of the relatively high cost of domestic union labor. A narrowing of the scope of domestic union production will eliminate relatively labor-intensive goods, leading a rent-maximizing union to raise its union premium. The implications of this union behavior for comparative statics results are considered.