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Reaching Market Equilibrium Merely by Bilateral Barters

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  • Sjur Didrik Flåm
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    Abstract

    Motivated by emission and resource markets, this paper considers repeated, bilateral barters between owners of commodity bundles, contingent claims, or property rights. Focus is on feasible, voluntary exchanges, driven only by differences in substitution rates. No coordination is ever needed. The modelling complies with adaptive learning, behavioral economics, and decentralized decision-making. Presuming transferable utility, the paper provides sufficient conditions for convergence to market equilibrium. It is expedient that some parties have differentiable objectives or make strictly feasible choices.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-12/cesifo1_wp4504.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4504.

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    Date of creation: 2013
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    Handle: RePEc:ces:ceswps:_4504

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    Keywords: bilateral exchange; market equilibrium; transferable utility; common price; supergradients; stability; convergence;

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    1. S. D. Flåm. & L. Koutsougeras, 2007. "Private information, transferable utility,and the core," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0703, Economics, The University of Manchester.
    2. Wooders, Myrna Holtz, 1994. "Equivalence of Games and Markets," Econometrica, Econometric Society, Econometric Society, vol. 62(5), pages 1141-60, September.
    3. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
    4. Gintis Herbert, 2006. "The Emergence of a Price System from Decentralized Bilateral Exchange," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 6(1), pages 1-15, December.
    5. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
    6. Sayantan Ghosal & Massimo Morelli, 2002. "Retrading in Market Games," Economics Working Papers 0012, Institute for Advanced Study, School of Social Science.
    7. Ostroy, Joseph M., 1980. "The no-surplus condition as a characterization of perfectly competitive equilibrium," Journal of Economic Theory, Elsevier, vol. 22(2), pages 183-207, April.
    8. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(4), pages 463-73, October.
    9. Wilhite, Allen, 2001. "Bilateral Trade and 'Small-World' Networks," Computational Economics, Society for Computational Economics, vol. 18(1), pages 49-64, August.
    10. Flåm, Sjur Didrik & Gramstad, Kjetil, 2012. "Direct Exchange in Linear Economies," Working Papers in Economics 05/12, University of Bergen, Department of Economics.
    11. John Rust & George Hall, 2003. "Middlemen versus Market Makers: A Theory of Competitive Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(2), pages 353-403, April.
    12. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
    13. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(5), pages 937-68, October.
    14. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
    15. Ostroy, Joseph M, 1984. "A Reformulation of the Marginal Productivity Theory of Distribution," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 599-630, May.
    16. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 817-868, August.
    17. James Andreoni & B. Douglas Bernheim, 2007. "Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects," Discussion Papers, Stanford Institute for Economic Policy Research 07-030, Stanford Institute for Economic Policy Research.
    18. Makowski, Louis, 1980. "A characterization of perfectly competitive economies with production," Journal of Economic Theory, Elsevier, vol. 22(2), pages 208-221, April.
    19. Didrik Flåm, Sjur, 2012. "Coupled projects, core imputations, and the CAPM," Journal of Mathematical Economics, Elsevier, vol. 48(3), pages 170-176.
    20. David Lucking-Reiley & Daniel F. Spulber, 2000. "Business-to-Business Electronic Commerce," Vanderbilt University Department of Economics Working Papers 0016, Vanderbilt University Department of Economics.
    21. Goldman, Steven M & Starr, Ross M, 1982. "Pairwise, t-Wise, and Pareto Optimalities," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 593-606, May.
    22. Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March.
    23. Saari, Donald G, 1985. "Iterative Price Mechanisms," Econometrica, Econometric Society, Econometric Society, vol. 53(5), pages 1117-31, September.
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