Evolutionary Choice of Markets
AbstractWe consider an economy where a finite set of agents can trade on one of two asset markets. Due to endogenous participation the markets may differ in the liquidity they provide. Moreover, traders have idiosyncratic preferences for the markets, e.g. due to differential time preferences for maturity dates of futures contracts. For a broad range of parameters we find that no trade, trade on both markets (individualization) as well as trade on one market only (standardization) is supported by a Nash equilibrium. By contrast whenever the number of traders becomes large the evolutionary process selects a unique stochastically stable state which corresponds to the equilibrium with two active markets and coincides with the welfare maximizing market structure.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 109.
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Endogenous participation; standardization; evolution; stochastic stability;
Find related papers by JEL classification:
- C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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- Kirchsteiger,Georg & Alós-Ferrer,Carlos, 2003.
"Does Learning Lead to Coordination on Market Clearing Institutions?,"
053, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
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"Evolution with State-Dependent Mutations,"
CORE Discussion Papers
1994055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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