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Evolutionary Choice of Markets


  • Anke Gerber
  • Marc Oliver Bettz�ge


We consider an economy where a finite set of agents can trade on one of two asset markets. Due to endogenous participation the markets may differ in the liquidity they provide. Moreover, traders have idiosyncratic preferences for the markets, e.g. due to differential time preferences for maturity dates of futures contracts. For a broad range of parameters we find that no trade, trade on both markets (individualization) as well as trade on one market only (standardization) is supported by a Nash equilibrium. By contrast whenever the number of traders becomes large the evolutionary process selects a unique stochastically stable state which corresponds to the equilibrium with two active markets and coincides with the welfare maximizing market structure.

Suggested Citation

  • Anke Gerber & Marc Oliver Bettz�ge, "undated". "Evolutionary Choice of Markets," IEW - Working Papers 109, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:109

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    References listed on IDEAS

    1. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
    2. Bergin, James & Lipman, Barton L, 1996. "Evolution with State-Dependent Mutations," Econometrica, Econometric Society, vol. 64(4), pages 943-956, July.
    3. Kirchsteiger Georg & Alós-Ferrer Carlos, 2003. "Does Learning Lead to Coordination on Market Clearing Institutions?," Research Memorandum 053, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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    More about this item


    Endogenous participation; standardization; evolution; stochastic stability;

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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