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Decentralized trade, random utility and the evolution of social welfare

  • Volij, Oscar
  • Serrano, Roberto
  • Kandori, Michihiro

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 de Madrid. Departamento de Economía in its series UC3M Working papers. Economics 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. Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  2. 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.
  3. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," CIRJE F-Series CIRJE-F-286, CIRJE, Faculty of Economics, University of Tokyo.
  4. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
  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. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  8. Roberto Serrano & Oscar Volij, 2003. "MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting," Working Papers 2003-23, Brown University, Department of Economics.
  9. 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.
  10. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
  11. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  12. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  13. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  14. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
  15. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  16. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  17. 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.
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