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Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency

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  • Ghosal, Sayantan
  • Porter, James

Abstract

In this paper, we study out-of-equilibrium dynamics with decentralised exchange (bilateral bargaining between randomly matched pairs of agents). We characterise the conditions under which out-of-equilibrium trading converges to efficient allocations when agents are myopic, have limited information and incur utility losses relative to current holdings by engaging in (bounded) experimentation. We show, numerically, that the rate of convergence to efficient allocations is exponential across a variety of different settings where agents’ preferences can be represented by a Cobb–Douglas utility function. Finally the results are generalised to explicit exchange networks.

Suggested Citation

  • Ghosal, Sayantan & Porter, James, 2013. "Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 1-21.
  • Handle: RePEc:eee:matsoc:v:66:y:2013:i:1:p:1-21
    DOI: 10.1016/j.mathsocsci.2012.12.005
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    References listed on IDEAS

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    Cited by:

    1. Lee, Kangil & Han, Taek-Whan, 2016. "How vulnerable is the emissions market to transaction costs?: An ABMS Approach," Energy Policy, Elsevier, vol. 90(C), pages 273-286.
    2. Maria-Augusta Miceli & Federico Cecconi & Giovanni Cerulli, 2013. "Walrasian TatÈ nnement by Sequential Pairwise Trading: Convergence and Welfare Implications," Working Papers 161, University of Rome La Sapienza, Department of Public Economics.
    3. Mandel, Antoine & Gintis, Herbert, 2014. "Stochastic stability in the Scarf economy," Mathematical Social Sciences, Elsevier, vol. 67(C), pages 44-49.

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