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

Paper: arXiv 2309.03432

Authors: Sabiou Inoua, Vernon Smith

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.

Complexity vs Empirical Score

• Math Complexity: 5.5/10
• Empirical Rigor: 2.5/10
• Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper provides a thoughtful theoretical reappraisal of asset re-tradability vs. perishable goods by reformulating classic theoretical benchmarks like the no-trade theorem. While mathematically sound and conceptually engaging, it lacks empirical data analysis or historical backtesting to validate its claims.

Research Flowchart

  flowchart TD
    A[Research Goal: Explain market stability & efficiency gap<br>between perishable goods & re-tradable assets] --> B[Input: Known experimental data &<br>Neoclassical finance principles]
    B --> C[Methodology: Apply competitive market<br>price formation theory]
    C --> D[Process: Reformulate No-Trade &<br>No-Arbitrage Theorems for multi-asset markets]
    D --> E[Outcome: Formal proof that asset re-tradability<br>inherently reduces market stability & efficiency]