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Walrasian Dynamics with Endowment Changes: The Gale Example in a Laboratory Market Experiment

Author

Listed:
  • Emiko Fukuda

    (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology, JAPAN)

  • Shuhei Sato

    (Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology, JAPAN)

  • Junyi Shen

    (Research Institute for Economics and Business Administration, Kobe University, Japan and School of Economics, Shanghai University, China)

  • Ken-Ichi Shimomura

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

  • Takehiko Yamato

    (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology, JAPAN)

Abstract

We study the stability of price dynamics when endowments change by a laboratory market experiment of double auction. We consider a two-commodity exchange economy based on the Gale example, in which there are consumers with non-smooth preferences and exists a unique interior equilibrium. Keeping preferences and total amounts of the commodities fixed, we change individual endowments without informing subjects of when to switch so that stability of the equilibrium in Walrasian tatonnement dynamics is reversed in the middle of the experiment. We observe that, the tendency of divergence from the equilibrium is switched to convergence to the equilibrium when endowments change from an unstable setting to a stable setting, and vice versa. Theoretical predictions on movements of transaction prices work better when the interior equilibrium is unstable than when it is stable. Moreover, efficiency is higher when the interior equilibrium is unstable than when it is stable. Our observations reinforce experimental results of the Walrasian dynamics by examining a simple economy in which implausible outcomes are predicted.

Suggested Citation

  • Emiko Fukuda & Shuhei Sato & Junyi Shen & Ken-Ichi Shimomura & Takehiko Yamato, 2020. "Walrasian Dynamics with Endowment Changes: The Gale Example in a Laboratory Market Experiment," Discussion Paper Series DP2020-20, Research Institute for Economics & Business Administration, Kobe University, revised Apr 2021.
  • Handle: RePEc:kob:dpaper:dp2020-20
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Walrasian stability; Experiments; Double auction;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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