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Decentralized Trade, Random Utility and the Evolution of Social Welfare

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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 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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Bibliographic Info

Paper provided by Brown University, Department of Economics in its series Working Papers with number 2004-06.

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Date of creation: 2004
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Handle: RePEc:bro:econwp:2004-06

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Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
  2. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
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  4. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  5. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
  6. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  7. Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  8. 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.
  9. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  10. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  11. 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.
  12. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  13. 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.
  14. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  15. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
  16. 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.
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Cited by:
  1. 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.
  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.
  3. 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.
  4. 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.
  5. 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.
  6. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," Sciences Po publications 2009-34, Sciences Po.
  7. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
  8. 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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