Walrasian TatÈnnement by Sequential Pairwise Trading: Convergence and Welfare Implications
This paper characterizes the out-of-equilibrium dynamics of a symmetric, pure exchange economy with two goods and N agents with uniformly distributed preferences and identical endowments. Relaxing the auctioneer assumption, but maintaining a global price rule, sequentially random pairwise trading at out-of-equilibrium prices is allowed. Initial mispricing implies rationing, determining excess demand (supply) fading away only at convergence, when the price of the initially cheaper (more expensive) good becomes more expensive (cheaper) than the walrasian one. The system converges when the sequential price reaches the walrasian price evaluated at current updated endowments. A perfectly symmetric setting, by initial mispricing and consequent rationed trading, creates asymmetric resource allocations even at convergence, where welfare is less than a standardized 1% lower than the auctioneer Pareto one. This model sketches a possible basis for price over-reaction microfoundation and captures endogenous "wealth divide" among the population, induced by whether agent trading is dominated by good preferences or just by speculation around their prices.
|Date of creation:||Mar 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 6 49766353
Fax: +39 6 4462040
Web page: http://www.dipecodir.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gale, David, 1976. "The linear exchange model," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 205-209, July.
- Fisher, Franklin M, 1981. "Stability, Disequilibrium Awareness, and the Perception of New Opportunities," Econometrica, Econometric Society, vol. 49(2), pages 279-317, March.
- Rubinstein, Ariel & Wolinsky, Asher, 1985.
"Equilibrium in a Market with Sequential Bargaining,"
Econometric Society, vol. 53(5), pages 1133-50, September.
- Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
- Goldman, Steven M & Starr, Ross M, 1982. "Pairwise, t-Wise, and Pareto Optimalities," Econometrica, Econometric Society, vol. 50(3), pages 593-606, May.
- Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
- Clower, Robert & Leijonhufvud, Axel, 1975. "The Coordination of Economic Activities: A Keynesian Perspective," American Economic Review, American Economic Association, vol. 65(2), pages 182-88, May.
- Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
- Scarf, Herbert E., 1971.
"On the existence of a coopertive solution for a general class of N-person games,"
Journal of Economic Theory,
Elsevier, vol. 3(2), pages 169-181, June.
- Herbert E. Scarf, 1970. "On the Existence of a Cooperative Solution for a General Class of N-Person Games," Cowles Foundation Discussion Papers 293, Cowles Foundation for Research in Economics, Yale University.
- Herbert Gintis & Antoine Mandel, 2012.
"The Stability of Walrasian General Equilibrium,"
Documents de travail du Centre d'Economie de la Sorbonne
12065, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Herbert Gintis & Antoine Mandel, 2012. "The Stability of Walrasian General Equilibrium," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00748215, HAL.
- Herbert Gintis & Antoine Mandel, 2012. "The Stability of Walrasian General Equilibrium," Documents de travail du Centre d'Economie de la Sorbonne 12065r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Apr 2013.
- 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.
- repec:cup:cbooks:9780521643306 is not listed on IDEAS
- Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
- repec:cup:cbooks:9780521644105 is not listed on IDEAS
- Herbert Gintis, 2007. "The Dynamics of General Equilibrium," Economic Journal, Royal Economic Society, vol. 117(523), pages 1280-1309, October.
- McLennan, Andrew & Sonnenschein, Hugo, 1991. "Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium," Econometrica, Econometric Society, vol. 59(5), pages 1395-1424, September.
- Hahn, F H, 1970. "Some Adjustment Problems," Econometrica, Econometric Society, vol. 38(1), pages 1-17, January.
- Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
- Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
- Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-18, July.
- Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
- Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
When requesting a correction, please mention this item's handle: RePEc:sap:wpaper:wp161. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luisa Giuriato)
If references are entirely missing, you can add them using this form.