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The Hayek Hypothesis and the Production Decision: An Experimental Analysis

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  • John Janmaat

    (Acadia University)

Abstract

The Hayek Hypothesis holds that prices contain enough information to direct the resources in the economy to their most efficient use. In a series of experiments, Vernon Smith [1987] found that with the right trading institutions, a market with agents that know only their own valuations of a good will converge quite rapidly to the competitive equilibrium price and trading volume. In the series of experiments reported here, the extension of the Hayek Hypothesis to an economy with production is explored. When agents can choose between autarkic production and specialization, they have the opportunity to hedge against market risk. A coordination problem is also created, interfering with the ability of the system to converge on the theoretical Richardian equilibrium.

Suggested Citation

  • John Janmaat, 2003. "The Hayek Hypothesis and the Production Decision: An Experimental Analysis," Experimental 0305003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:0305003
    Note: Type of Document - Acrobat PDF; prepared on IBM PC - Lyx; to print on Generic Postscript; pages: 39 ; figures: included. Results of an experiment where subjects produce and trade in a Ricardian environment with limited information. Looking for comments and suggestions.
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/exp/papers/0305/0305003.pdf
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    Keywords

    experimental economics; trade; Ricardian economy; coordination failure.;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • F19 - International Economics - - Trade - - - Other

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