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The Evolution of Exchange

Author

Listed:
  • Roberto Serrano

    (Department of Economics, Brown University.)

  • Assaf Ben-Shoham

    (Department of Economics, Hebrew University.)

  • Oscar Volij

    (Department of Economics, Brown University, and Department of Economics, Hebrew University of Jerusalem.)

Abstract

Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy-level.

Suggested Citation

  • Roberto Serrano & Assaf Ben-Shoham & Oscar Volij, 2000. "The Evolution of Exchange," Economic theory and game theory 012, Oscar Volij.
  • Handle: RePEc:nid:ovolij:012
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    File URL: http://volij.co.il/publications/papers/HOUSING4.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kandori, Michihiro & Serrano, Roberto & Volij, Oscar, 2008. "Decentralized trade, random utility and the evolution of social welfare," Journal of Economic Theory, Elsevier, vol. 140(1), pages 328-338, May.
    2. Roberto Serrano & Oscar Volij, 2008. "Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting," Economic Journal, Royal Economic Society, vol. 118(532), pages 1719-1741, October.
    3. repec:spr:jogath:v:46:y:2017:i:1:d:10.1007_s00182-015-0526-2 is not listed on IDEAS
    4. Accinelli, Elvio & Covarrubias, Enrique, 2015. "Evolution in a Walrasian setting," MPRA Paper 64736, University Library of Munich, Germany.
    5. Sawa, Ryoji, 2014. "Coalitional stochastic stability in games, networks and markets," Games and Economic Behavior, Elsevier, vol. 88(C), pages 90-111.
    6. Chongmin Kim & Kam-Chau Wong, 2011. "Evolution of Walrasian equilibrium in an exchange economy," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 619-647, October.
    7. Oscar Volij, 1998. "In Defense of DEFECT or Cooperation does not Justify the Solution Concept," Economic theory and game theory 007, Oscar Volij, revised 26 Aug 1999.
    8. Roland Pongou & Roberto Serrano, 2009. "A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV / AIDS," Working Papers wp2009_0909, CEMFI.
    9. Boncinelli, Leonardo & Pin, Paolo, 2012. "Stochastic stability in best shot network games," Games and Economic Behavior, Elsevier, vol. 75(2), pages 538-554.
    10. Kevin Hasker, 2014. "The Emergent Seed: A Representation Theorem for Models of Stochastic Evolution and two formulas for Waiting Time," Levine's Working Paper Archive 786969000000000954, David K. Levine.
    11. Christos Ioannou, 2014. "Coevolution of finite automata with errors," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 541-571, July.
    12. Ghosal, Sayantan & Porter, James, 2013. "Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 1-21.
    13. Leonardo Boncinelli, 2007. "Global vs. Local Information," Department of Economics University of Siena 520, Department of Economics, University of Siena.

    More about this item

    Keywords

    stochastic stability; exchange; housing problem; efficiency; envy.;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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