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Market Dynamics in Edgeworth Exchange


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  • Steven Gjerstad

    (University of Arizona)


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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Bibliographic Info

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

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

Note: Type of Document - pdf; prepared on WinXP; pages: 39; figures: 13
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Related research

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

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  1. Anderson, Christopher M. & Plott, Charles R. & Shimomura, K.-I.Ken-Ichi & Granat, Sander, 2004. "Global instability in experimental general equilibrium: the Scarf example," Journal of Economic Theory, Elsevier, vol. 115(2), pages 209-249, April.
  2. Gjerstad, S. & Dickhaut, J., 1995. "Price Formation in Double Auctions," Papers 284, Minnesota - Center for Economic Research.
  3. Cox, James C, 1997. "On Testing the Utility Hypothesis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(443), pages 1054-78, July.
  4. Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation for Research in Economics, Yale University.
  5. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
  6. Steven Gjerstad, 2003. "The Impact of Pace in Double Auction Bargaining," Levine's Bibliography 666156000000000192, UCLA Department of Economics.
  7. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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Cited by:
  1. Sean Crockett, 2008. "Learning competitive equilibrium in laboratory exchange economies," Economic Theory, Springer, vol. 34(1), pages 157-180, January.


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