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Sequential Markets: An Experimental Investigation of Clower's Dual-Decision Hypothesis

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  • John Hey

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  • Daniela Cagno

Abstract

Countless experimental studies have shown that markets converge quickly and efficiently to the competitive outcome under many trading institutions, particularly the double auction mechanism. This creates difficulties for Keynesian stories of unemployment creation—which suggest a noncompetitive outcome in an essentially competitive world. Such stories were popular in the late 1960s and 1970s. One of these stories—the dual decision hypothesis of Clower—was seen then as the beginning of a story of unemployment. This article reports the results of an experiment designed to test this hypothesis. Specifically, we set up an experiment in which there are two sequential double-auction markets, in the first of which one good (labour) is traded, after which the second market (goods) is opened and the second good traded. We compare the outcome of our experiment with that of the competitive theory. One general finding is that not enough trade takes place in the two markets. In other words, the usual finding that competitive equilibrium is achieved in double-auction markets is not replicated in this sequential setting. Copyright Economic Science Association 1998

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File URL: http://hdl.handle.net/10.1023/A:1009909900914
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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 1 (1998)
Issue (Month): 1 (June)
Pages: 63-85

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Handle: RePEc:kap:expeco:v:1:y:1998:i:1:p:63-85

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: sequential trade; unemployment; double auctions; competitive equilibrium;

References

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  1. Timothy N. Cason & Daniel Friedman, 1997. "Price Formation in Single Call Markets," Econometrica, Econometric Society, vol. 65(2), pages 311-346, March.
  2. Antoni Bosch-Domènech & Joaquim Silvestre, 1996. "Credit constraints in general equilibrium: Experimental results," Economics Working Papers 105, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Noussair, Charles & Plott, Charles & Riezman, Raymond, 2007. "Production, trade, prices, exchange rates and equilibration in large experimental economies," European Economic Review, Elsevier, vol. 51(1), pages 49-76, January.
  2. Arno Riedl & Frans van Winden, 2003. "Input Versus Output Taxation In An Experimental International Economy," Levine's Bibliography 666156000000000277, UCLA Department of Economics.
  3. Riedl, Arno & van Winden, Frans, 2007. "An experimental investigation of wage taxation and unemployment in closed and open economies," European Economic Review, Elsevier, vol. 51(4), pages 871-900, May.
  4. Peter Hans Matthews, 2004. "Who is Post-Walrasian Man?," Middlebury College Working Paper Series 0412, Middlebury College, Department of Economics.
  5. John D. Hey & Daniela Di Cagno, 2013. "Does Sequentiality Impede Convergence?," Discussion Papers 13/03, Department of Economics, University of York.

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