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Decentralized Trade, Random Utility and the Evolution of Social Welfare

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Author Info
Michihiro Kandori () (Department of Economics, University of Tokyo)
Roberto Serrano () (Department of Economics, Brown University)
Oscar Volij () (Department of Economics, Iowa State University)

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Abstract

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. Such processes are subject to 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 maximizer of several social welfare functions in different variants of the model.

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Publisher Info
Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0042.

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Length: 17 pages
Date of creation: Jul 2004
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Handle: RePEc:ads:wpaper:0042

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Related research
Keywords: Decentralized Trade Exchange Economies Housing Markets Stochastic Stability Logit Model Social Welfare Functions

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Find related papers by JEL classification:
C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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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. 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)
  4. 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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  5. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  6. Ben-Shoham, Assaf & Serrano, Roberto & Volij, Oscar, 2004. "The evolution of exchange," Journal of Economic Theory, Elsevier, vol. 114(2), pages 310-328, February. [Downloadable!] (restricted)
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  7. 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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  8. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
  9. 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)
  10. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February. [Downloadable!] (restricted)
  11. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
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  1. 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:
  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:
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