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Market Dynamics in Edgeworth Exchange

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Author Info
Steven Gjerstad (University of Arizona)

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Abstract

Edgeworth exchange is the fundamental general equilibrium model, yet equilibrium predications and theories of price adjustment for this model remain untested. This paper reports an experimental test of Edgeworth exchange which demonstrates that prices and allocations converge sharply to the competitive equilibrium. Price convergence is evaluated with the tatonnement model, interpreted as a disequilibrium model of across- period price adjustment. Subsequently, the extent of within-period adjustment is compared to that of across-period adjustment. Since most observed price adjustment occurs within trading periods, price adjustment data is evaluated with two disequilibrium models of within- period trades. These models are the Geometric Mean model, which is formulated in this paper, and the Hahn process (Hahn and Negishi [1962]). Price dynamics from experiment sessions fit the Geometric Mean model better than the Hahn process, and in addition, the Geometric Mean model provides direction for development of an Edgeworth exchange bargaining model.

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Paper provided by EconWPA in its series Microeconomics with number 0401006.

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Length: 39 pages
Date of creation: 19 Jan 2004
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Handle: RePEc:wpa:wuwpmi:0401006

Note: Type of Document - pdf; prepared on WinXP; pages: 39; figures: 13
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Web page: http://129.3.20.41

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Related research
Keywords: Competitive equilibrium; disequilibrium dynamics; double auction; Edgeworth exchange; experimental economics; exchange economy; Hahn process; market dynamics;

Other versions of this item:

Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cox, James C, 1997. "On Testing the Utility Hypothesis," Economic Journal, Royal Economic Society, vol. 107(443), pages 1054-78, July. [Downloadable!] (restricted)
  2. Steven Gjerstad, 2003. "The Impact of Pace in Double Auction Bargaining," Levine's Bibliography 666156000000000192, UCLA Department of Economics. [Downloadable!]
  3. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January. [Downloadable!] (restricted)
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  4. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December. [Downloadable!] (restricted)
  5. Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation, Yale University. [Downloadable!]
  6. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sean Crockett, 2008. "Learning competitive equilibrium in laboratory exchange economies," Economic Theory, Springer, vol. 34(1), pages 157-180, January. [Downloadable!] (restricted)
  2. Hirota, Masayoshi & Hsu, Ming & Plott, Chrales R. & Rogers, Brian W., 2005. "Divergence, closed cycles and convergence in scarf environments: Experiments in the dynamics of general equilibrium systems," Working Papers 1239, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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