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A Trade Network Game With Endogenous Partner Selection

  • Leigh TESFATSION

    ()

This paper develops a Trade Network Game (TNG) that combines evolutionary game play with endogenous partner selection. Resource- constrained buyers and sellers choose and refuse trade partners on the basis of continually updated expected payoffs. Partner selection takes place in accordance with a "deferred choice and refusal" mechanism that is shown to have interesting stability, optimality, and uniqueness properties. The iterated prisoner's dilemma strategies used by buyers and sellers to conduct their trades are evolved over time via a genetic algorithm that biases reproduction in favor of strategies that have been successful in past trades. The TNG is shown to encompass a variety of economic applications, such as job search games, labor markets modelled as assignment games, labor markets with endogenously determined workers and employers, and double auction games. To illustrate the way in which preferential partner selection interacts with game play in the TNG, resulting in the endogenous formation of trade networks, a 5-trader TNG is analyzed in detail.

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File URL: http://purl.umn.edu/18191
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Paper provided by Iowa State University Department of Economics in its series Economic Report with number 36.

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Date of creation: May 1995
Date of revision:
Handle: RePEc:isu:iowaer:36
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  2. McFadzean, David & Tesfatsion, Leigh S., 1999. "A C++ Platform for the Evolution of Trade Networks," Staff General Research Papers 1639, Iowa State University, Department of Economics.
  3. Esther Hauk, . "Leaving the Prison: A Discussion of the Iterated Prisoner's Dilemma under Preferential Partner Selection," Computing in Economics and Finance 1996 _067, Society for Computational Economics.
  4. Hirshlifer, David & Rassmusen, Eric, 1989. "Cooperation in a repeated prisoners' dilemma with ostracism," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 87-106, August.
  5. Alan P. Kirman, 1994. "Economies with Interacting Agents," Working Papers 94-05-030, Santa Fe Institute.
  6. Yannis M. Ioannides, 1996. "Evolution of Trading Structures," Working Papers 96-04-020, Santa Fe Institute.
  7. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  8. Ashlock, Daniel & Smucker, Mark D. & Stanley, E. Ann & Tesfatsion, Leigh S., 1996. "Preferential Partner Selection in an Evolutionary Study of Prisoner's Dilemma," Staff General Research Papers 1687, Iowa State University, Department of Economics.
  9. Stanley, E.A. & Ashlock, Daniel & Tesfatsion, Leigh, 1994. "Iterated Prisoner's Dilemma with Choice and Refusal of Partners," Staff General Research Papers 11180, Iowa State University, Department of Economics.
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