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Convergence of Double Auctions to Pareto Optimal Allocations in the Edgeworth Box

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Author Info

  • Dhananjay K.
  • Shyam Sunder
  • Stephen Spear

Abstract

Double auctions with profit-motivated human traders as well as "zero-intelligence" programmed traders have previously been shown to converge to Pareto optimal allocations in partial equilibrium settings. We show that these results remain robust in two-good general equilibrium settings and elucidate how market structure, not optimization by traders, guides efficient resource allocation.

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File URL: http://icfpub.som.yale.edu/publications/2518
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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2518.

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Date of creation: 01 Jun 2004
Date of revision: 01 Apr 2008
Handle: RePEc:ysm:somwrk:amz2518

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Web page: http://icf.som.yale.edu/
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Related research

Keywords: Pareto optimal allocations; Edgeworth Box; Double auction; Zero-intelligence traders;

References

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  1. Bosch, A. & Sunder, S., 1994. "Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium," GSIA Working Papers 1994-11, Carnegie Mellon University, Tepper School of Business.
  2. Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
  3. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111.
  4. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
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Cited by:
  1. Huber, Juergen & Shubik, Martin & Sunder, Shyam, 2007. "Three Minimal Market Institutions: Theory and Experimental Evidence," Working Papers 27, Yale University, Department of Economics.
  2. Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "Default Penalty as a Disciplinary and Selection Mechanism in Presence of Multiple Equilibria," Cowles Foundation Discussion Papers 1730, Cowles Foundation for Research in Economics, Yale University.

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