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Decentralized Trade, Random Utility and the Evolution of Social Welfare ("Journal of Economic Theory", 2008, Vol.140, .No. 1, 328-338. )

Author

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  • Michihiro Kandori

    (Faculty of Economics, University of Tokyo)

  • Roberto Serrano

    (Brown University)

  • Oscar Volij

    (Iowa State University and Ben-Gurion University of the Negev)

Abstract

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 maximizer of several social welfare functions in different variants of the model.

Suggested Citation

  • Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare ("Journal of Economic Theory", 2008, Vol.140, .No. 1, 328-338. )," CARF F-Series CARF-F-009, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  • Handle: RePEc:cfi:fseres:cf009
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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/19.pdf
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    1. 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.
    2. John C. Harsanyi & Reinhard Selten, 1972. "A Generalized Nash Solution for Two-Person Bargaining Games with Incomplete Information," Management Science, INFORMS, vol. 18(5-Part-2), pages 80-106, January.
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