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Decentralized Trade, Random Utility and the Evolution of Social Welfare

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  • Michihiro Kandori

    (Faculty of Economics, University of Tokyo)

  • Roberto Serrano

    (Brown University)

  • Oscar Volij

    (Iowa State University and Ben-Gurion University of the Negev)

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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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2004/2004cf286.pdf
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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-286.

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Length: 21 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:tky:fseres:2004cf286

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  1. KANDORI, Michihiro & Roberto Serrano & Oscar Volij, . "Decentralized Trade, Random Utility and the Evolution of Social Welfare," Economic theory and game theory 021, Oscar Volij.
  2. Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  3. 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.
  4. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
  5. Roberto Serrano & Oscar Volij, 2003. "MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting," Working Papers 2003-23, Brown University, Department of Economics.
  6. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
  7. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  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.
  10. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  11. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  12. 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.
  13. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
  14. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  15. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  16. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
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Citations

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Cited by:
  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.
  2. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," CIRJE F-Series CIRJE-F-286, CIRJE, Faculty of Economics, University of Tokyo.
  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. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," Documents de Travail de l'OFCE 2009-34, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
  6. 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.
  7. 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.
  8. 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.

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