Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies
AbstractThis Paper considers the efficiency and convergence properties of dynamic processes of social and economic interactions, such as exchange economies, multilateral negotiations, merger and divestiture transactions, or legislative bargaining. The key general feature of the economy is that agents can implement any move from one state to another as long as a pre-specified subset of agents approve. By means of examples, we show that inefficiencies may occur even in the long run. Persistent inefficiencies take the form of cycles between states or of convergence to an inefficient state. When agents are sufficiently patient, we show very generally that the initial state from which the process starts plays no role in the long-run properties of equilibria. Also, when there exists an efficient state that is externality free (in the sense that a move away from that state does not hurt the agents whose consent is not required for the move), then the system must converge to this efficient state in the long-run. Conversely, long-run efficiency can only be attained in a robust way if there exists an efficient externality-free state. It is thus more important to design transitions guaranteeing the existence of an efficient externality-free state rather than to implement a fine initialization of the process.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3012.
Date of creation: Oct 2001
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Other versions of this item:
- Armando Gomes & Philippe Jehiel, 2005. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 626-667, June.
- Gomes, A. & Jehiel, P., 2005. "Dynamic processes of social and economic interactions: on the persistence of inefficiencies," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Armo Gomes & Philippe Jehiel, 2001. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Penn CARESS Working Papers 76ff153ae29996d16c454e473, Penn Economics Department.
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
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