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Decentralized trade, random utility and the evolution of social welfare

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Author Info
Kandori, Michihiro
Serrano, Roberto
Volij, Oscar

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Abstract

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. The processes are affected by persistent random shocks stemming from agents' maximization of random utility. By imposing structure on the utility noise term--logit distribution--one is able to calculate exactly the stationary distribution of the perturbed Markov process for any level of noise. We show that the stationary distribution places the largest probability on the maximizers of weighted sums of the agents' (intrinsic) utilities, and this probability tends to 1 as noise vanishes.

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File URL: http://www.sciencedirect.com/science/article/B6WJ3-4S26S2K-1/1/a6ee246d6aa02e5a684f1a70c420c90e
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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 140 (2008)
Issue (Month): 1 (May)
Pages: 328-338
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Handle: RePEc:eee:jetheo:v:140:y:2008:i:1:p:328-338

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," Economics Working Papers 0042, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  2. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March. [Downloadable!] (restricted)
  3. Roberto Serrano & Oscar Volij, 2003. "Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting," Economics Working Papers 0029, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  4. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January. [Downloadable!] (restricted)
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  5. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
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  6. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July. [Downloadable!] (restricted)
  7. Volij, Oscar & Ben-Shoham, Asaf & Serrano, Roberto, 2003. "The Evolution of Exchange," Staff General Research Papers 10247, Iowa State University, Department of Economics.
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  8. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Bibliography 122247000000002376, UCLA Department of Economics. [Downloadable!]
  9. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February. [Downloadable!] (restricted)
  10. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
  11. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  12. H. Peyton Young & Mary A. Burke, 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture," American Economic Review, American Economic Association, vol. 91(3), pages 559-573, June. [Downloadable!] (restricted)
  13. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
    Other versions:
  2. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2005. "Decentralized Trade, Random Utility And The Evolution Of Social Welfare," Economics Working Papers we056433, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  3. Roberto Serrano & Oscar Volij, 2005. "Mistakes In Cooperation: The Stochastic Stability Of Edgeworth'S Recontracting," Economics Working Papers we056332, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
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