Income distribution, efficiency and rationing

This paper studies the impacts of income distribution on the efficiency of trade mechanism and rationing of agents who are priced out of trade in a dynamic search model with two-sided asymmetric information. Buyers and sellers have asymmetric information about valuations and incomes respectively. In such a frictional environment, the effects of several variants of changes in income distribution on efficiency of trading mechanism and the population of rationed buyers and sellers are elaborated.

Research Highlights► This paper searches out the effects of income distribution on efficiency of trading mechanism and rationing of agents. ► Changes in income distribution are effective on both efficiency and rationing. ► This connection is crucial for understanding the effects of external shocks and deriving policy implications.