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The evolution of exchange

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  • Ben-Shoham, Assaf
  • Serrano, Roberto
  • Volij, Oscar

Abstract

ABSTRACT: Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models, traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy level.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 114 (2004)
Issue (Month): 2 (February)
Pages: 310-328

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Handle: RePEc:eee:jetheo:v:114:y:2004:i:2:p:310-328

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Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:
  1. Kandori, Michihiro & Serrano, Roberto & Volij, Oscar, 2008. "Decentralized trade, random utility and the evolution of social welfare," Journal of Economic Theory, Elsevier, vol. 140(1), pages 328-338, May.
  2. Boncinelli, Leonardo & Pin, Paolo, 2012. "Stochastic stability in best shot network games," Games and Economic Behavior, Elsevier, vol. 75(2), pages 538-554.
  3. Oscar Volij, 1999. "In Defense or Defect or Cooperation Does not Justify the Solution Concept," Working Papers 99-26, Brown University, Department of Economics.
  4. Roberto Serrano & Oscar Volij, 2008. "Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting," Economic Journal, Royal Economic Society, vol. 118(532), pages 1719-1741, October.
  5. Leonardo Boncinelli, 2007. "Global vs. Local Information," Department of Economics University of Siena 520, Department of Economics, University of Siena.
  6. Kevin Hasker, 2014. "The Emergent Seed: A Representation Theorem for Models of Stochastic Evolution and two formulas for Waiting Time," Levine's Working Paper Archive 786969000000000954, David K. Levine.
  7. Roland Pongou & Roberto Serrano, 2009. "A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV/AIDS," Working Papers 2009-2, Brown University, Department of Economics.
  8. Ghosal, Sayantan & Porter, James, 2013. "Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 1-21.
  9. Christos Ioannou, 2014. "Coevolution of finite automata with errors," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 541-571, July.
  10. Chongmin Kim & Kam-Chau Wong, 2011. "Evolution of Walrasian equilibrium in an exchange economy," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 619-647, October.

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