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Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting

  • Roberto Serrano
  • Oscar Volij

We analyse a dynamic trading process of coalitional recontracting in an exchange economy with indivisible goods, where agents may make mistakes with small probability. According to this process, the resistance of a transition from one allocation to another is a function of the number of agents who make mistakes and of the seriousness of each mistake. If preferences are always strict, the unique stochastically stable state is the competitive equilibrium allocation. In economies with indifferences, non-core cycles are sometimes stochastically stable, while some core allocations are not. The robustness of these results is confirmed in a weak coalitional recontracting process. Copyright � The Author(s). Journal compilation � Royal Economic Society 2008.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 532 (October)
Pages: 1719-1741

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:532:p:1719-1741
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  1. Hideo Konishi & Debraj Ray, 2000. "Coalition Formation as a Dynamic Process," Boston College Working Papers in Economics 478, Boston College Department of Economics, revised 15 Apr 2002.
  2. J Bergin & B L Lipman, 1997. "Evolution with state-dependent Mutations," Levine's Working Paper Archive 771, David K. Levine.
  3. Assaf Ben-Shoham & Roberto Serrano & Oscar Volig, 2000. "The Evolution of Change," Working Papers 2000-06, Brown University, Department of Economics.
  4. Anderson, Robert M., 1992. "The core in perfectly competitive economies," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 14, pages 413-457 Elsevier.
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  16. Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  17. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, June.
  18. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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