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Dynamic Recontracting processes with Multiple Indivisible Goods

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  • Bochet, Olivier
  • Klaus, Bettina
  • Walzl, Markus

    (METEOR)

Abstract

We consider multiple-type housing markets. To capture the dynamic aspect of trade in such markets, we study a dynamic recontracting process similar to the one introduced by Serrano and Volij (2005). First, we analyze the set of recurrent classes of this process as a (non-empty) solution concept. We show that each core allocation always constitutes a singleton recurrent class and provide examples of non-singleton recurrent classes consisting of blocking-cycles of individually rational allocations. For multiple-type housing markets stochastic stability never serves as a selection device among recurrent classes. Next, we propose a method to compute the limit invariant distribution of the dynamic recontracting process. The limit invariant distribution exploits the interplay of coalitional stability and accessibility that determines a probability distribution over final allocations. We provide various examples to demonstrate how the limit invariant distribution discriminates among stochastically stable allocations: surprisingly, some core allocations are less likely to be final allocations of the dynamic process than cycles composed of non-core allocations.

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Bibliographic Info

Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 018.

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Date of creation: 2007
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Handle: RePEc:dgr:umamet:2007018

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: microeconomics ;

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Cited by:
  1. Bettina Klaus & Flip Klijn & Markus Walzl, 2008. "Stochastic Stability for Roommate Markets," Working Papers 357, Barcelona Graduate School of Economics.

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