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Decentralized Trade, Random Utility and the Evolution of Social Welfare

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. The processes are subject to persistent random shocks stemming from agents’ maximization of random utility. By imposing structure on the utility noise term —logit distribution—, one is able to calculate exactly the stationary distribution of the perturbed Markov process for any level of noise. We show that the stationary distribution places the largest probability on the maximizers of weighted sums of the agents’ (intrinsic) utilities, and this probability tends to 1 as noise vanishes

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File URL: http://www.brown.edu/academics/economics/sites/brown.edu.academics.economics/files/uploads/wp2004/2004-06_paper.pdf
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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2004-06.

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Date of creation: 2004
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Handle: RePEc:bro:econwp:2004-06
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  2. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
  3. Oscar Volij, 2000. "The Evolution of Exchange," Econometric Society World Congress 2000 Contributed Papers 0292, Econometric Society.
  4. Roberto Serrano & Oscar Volij, 2003. "Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting," Economics Working Papers 0029, Institute for Advanced Study, School of Social Science.
  5. Lawrence Blume, 1996. "Population Games," Game Theory and Information 9607001, EconWPA.
  6. Kandori, Michihiro & Serrano, Roberto & Volij, Oscar, 2008. "Decentralized trade, random utility and the evolution of social welfare," Journal of Economic Theory, Elsevier, vol. 140(1), pages 328-338, May.
  7. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  8. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  9. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  10. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  11. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  12. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
  13. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  14. H. Peyton Young & Mary A. Burke, 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture," American Economic Review, American Economic Association, vol. 91(3), pages 559-573, June.
  15. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  16. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  17. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
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