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Decentralized Trade, Random Utility and the Evolution of Social Welfare

Author

Listed:
  • Michihiro Kandori

    (Faculty of Economics, University of Tokyo)

  • Roberto Serrano

    (Brown University)

  • Oscar Volij

    (Iowa State University and Ben-Gurion University of the Negev)

Abstract

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 maximizer of several social welfare functions in different variants of the model.

Suggested Citation

  • 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.
    • Handle: RePEc:tky:fseres:2004cf286
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2004/2004cf286.pdf
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    References listed on IDEAS

    as
    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.
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    7. Ben-Shoham, Assaf & Serrano, Roberto & Volij, Oscar, 2004. "The evolution of exchange," Journal of Economic Theory, Elsevier, vol. 114(2), pages 310-328, February.
    8. 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.
    9. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
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    11. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
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    14. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
    15. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
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    Citations

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    Cited by:

    1. Zhiwei Cui & Yan-An Hwang, 2017. "House exchange and residential segregation in networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(1), pages 125-147, March.
    2. Accinelli, Elvio & Covarrubias, Enrique, 2015. "Evolution in a Walrasian setting," MPRA Paper 64736, University Library of Munich, Germany.
    3. Vipul Bhatt & Masao Ogaki & Yuichi Yaguchi, 2015. "Normative Behavioural Economics Based on Unconditional Love and Moral Virtue," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 226-246, June.
    4. 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.
    5. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," Sciences Po publications 2009-34, Sciences Po.
    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. Roland Pongou & Roberto Serrano, 2009. "A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV/AIDS," Working Papers 2009-2, Brown University, Department of Economics.
    8. 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.
    9. 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.
    10. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    11. Sawa, Ryoji, 2014. "Coalitional stochastic stability in games, networks and markets," Games and Economic Behavior, Elsevier, vol. 88(C), pages 90-111.
    12. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    13. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    14. 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.
    15. Akira Okada & Ryoji Sawa, 2016. "An evolutionary approach to social choice problems with q-quota rules," KIER Working Papers 936, Kyoto University, Institute of Economic Research.

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    More about this item

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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