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The Edgeworth exchange formulation of bargaining models and market experiments

  • Steven Gjerstad

    (University of Arizona)

  • Jason Shachat

    (T.J. Watson Research Center, IBM)

We construct Edgeworth exchange economies equivalent to demand and supply environments typically used in bargaining models and market experiments. This formulation clearly delineates environment, institution, and behavior for these models and experiments. To illustrate, we examine results by Gode and Sunder, who simulate random behavior in a double auction and argue that this institution leads to an efficient allocation, even in the absence of rationality. We use the Edgeworth exchange representation of their economic environment to demonstrate that they model individually rational behavior, and show that their model is a special case of theoretical results by Hurwicz, Radner, and Reiter.

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Paper provided by EconWPA in its series Microeconomics with number 0304004.

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Length: 12 pages
Date of creation: 10 Apr 2003
Date of revision:
Handle: RePEc:wpa:wuwpmi:0304004
Note: Type of Document - PDF file (from LaTeX); prepared on MikTex (LaTeX for PC); to print on HP/PostScript; pages: 12 ; figures: included. This paper is a substantial revision of ``A General Equilibrium Structure for Induced Supply and Demand" (UCSD Economics Discussion Paper 96-35).
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  1. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January.
  2. Aldo Rustichini, 1992. "Convergence to Efficiency in a Simple Market with Incomplete Information," Discussion Papers 995, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
  4. Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part II," Econometrica, Econometric Society, vol. 43(3), pages 363-93, May.
  5. Hurwicz, Leonid, 1995. "What is the Coase Theorem?," Japan and the World Economy, Elsevier, vol. 7(1), pages 49-74, May.
  6. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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