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Transfer paradox in a general equilibrium economy: An experimental investigation

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  • Kamei, Kenju

Abstract

The transfer paradox, whereby a transfer of resources that influences the equilibrium price benefits the donor while harming the recipient, is a classic paradox in general equilibrium theory. This paper pursues an experimental investigation of the transfer paradox using a three-agent pure exchange economy that is predicted to have such a paradox. The results indicate that an endowment adjustment among agents influences the market price, and consequently the donors benefit from the transfer, consistent with the competitive equilibrium theory. When given an option to make a transfer, half of donor agents voluntarily decide to adjust the endowment distribution.

Suggested Citation

  • Kamei, Kenju, 2022. "Transfer paradox in a general equilibrium economy: An experimental investigation," Economics Letters, Elsevier, vol. 211(C).
    • Handle: RePEc:eee:ecolet:v:211:y:2022:i:c:s0165176521004821
    DOI: 10.1016/j.econlet.2021.110253
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    1. Polemarchakis, H M, 1983. "On the Transer Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 749-760, October.
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    4. Kang, Minwook & Ye, Lei Sandy, 2016. "Advantageous redistribution with three smooth CES utility functions," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 171-180.
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    More about this item

    Keywords

    Experiments; Transfer paradox; General equilibrium; Equilibrium effects;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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