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Agency and Brokerage of Real Assets in Competitive Equilibrium

Joseph T. Williams
The Review of Financial Studies
Vol. 11, No. 2 (Summer, 1998), pp. 239-280
Stable URL: http://www.jstor.org/stable/2646046
Page Count: 42
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Agency and Brokerage of Real Assets in Competitive Equilibrium
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Abstract

Brokerage contracts for many categories of real assets are characterized by a common, constant commission rate payable upon sale, exclusive agency, and contractual asking prices. For a large market in steady state, these conventional contracts produce in equilibrium no agency problem between a broker and his clients. Each broker spends the same time or effort selling each client's asset as the broker would spend on his own assets. As in standard agency problems, extra effort by a broker generates first-order stochastically dominant distributions of bids by potential buyers. Unlike standard agency problems, each broker can allocate his time or effort between selling the assets of his multiple clients and searching for new clients in competition with other brokers. Because brokers' time spent searching for new sellers is dissipative, entry by brokers is excessive in equilibrium.

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