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Decentralized Trade, Random Utility And The Evolution Of Social Welfare

  • Michihiro Kandori

    ()

  • Roberto Serrano

    ()

  • Oscar Volij

    ()

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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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we056433.

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Date of creation: Nov 2005
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Handle: RePEc:cte:werepe:we056433
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  1. KANDORI, Michihiro & Roberto Serrano & Oscar Volij, . "Decentralized Trade, Random Utility and the Evolution of Social Welfare," Economic theory and game theory 021, Oscar Volij.
  2. 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.
  3. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  4. Ben-Shoham, Assaf & Serrano, Roberto & Volij, Oscar, 2004. "The evolution of exchange," Journal of Economic Theory, Elsevier, vol. 114(2), pages 310-328, February.
  5. Lawrence Blume, 1996. "Population Games," Game Theory and Information 9607001, EconWPA.
  6. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  7. Roberto Serrano & Oscar Volij, 2003. "MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting," Working Papers 2003-23, Brown University, Department of Economics.
  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  9. 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.
  10. 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.
  11. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  12. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  13. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  14. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  15. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, 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. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
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