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Decentralized trade, random utility and the evolution of social welfare

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  • Kandori, Michihiro
  • Serrano, Roberto
  • Volij, Oscar

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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Bibliographic 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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  1. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  2. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  3. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  4. 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.
  5. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  6. Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  7. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  8. 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.
  9. 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.
  10. 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.
  11. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
  12. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  13. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  14. Lawrence Blume, 1996. "Population Games," Game Theory and Information 9607001, EconWPA.
  15. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  16. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  17. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
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Cited by:
  1. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," CIRJE F-Series CIRJE-F-286, CIRJE, Faculty of Economics, University of Tokyo.
  2. 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.
  3. Roberto Serrano & Oscar Volij, 2003. "MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting," Working Papers 2003-23, Brown University, Department of Economics.
  4. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," Documents de Travail de l'OFCE 2009-34, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Roberto Serrano & Roland Pongou, 2009. "A Dynamic Theory Of Fidelity Networks With An Application To The Spread Of Hiv/Aids," Working Papers wp2009_0909, CEMFI.
  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. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
  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.

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