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Decentralized Trade, Random Utility and the Evolution of Social Welfare

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Abstract

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. The processes are affected by 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 maximizers of weighted sums of the agents' (intrinsic) utilities, and this probability tends to 1 as noise vanishes.
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  • Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," Working Papers 2004-06, Brown University, Department of Economics.
    • Handle: RePEc:bro:econwp:2004-06
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    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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    11. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    12. Ben-Shoham, Assaf & Serrano, Roberto & Volij, Oscar, 2004. "The evolution of exchange," Journal of Economic Theory, Elsevier, vol. 114(2), pages 310-328, February.
    13. Larry E. Blume, 1996. "Population Games," Working Papers 96-04-022, Santa Fe Institute.
    14. H. Peyton Young & Mary A. Burke, 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture," American Economic Review, American Economic Association, vol. 91(3), pages 559-573, June.
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    Citations

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    Cited by:

    1. 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.
    2. Roland Pongou & Roberto Serrano, 2009. "A Dynamic Theory of Fidelity Networks with an Application to the Spread of HIV / AIDS," Working Papers wp2009_0909, CEMFI.
    3. 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.
    4. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    6. 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.
    7. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," SciencePo Working papers Main hal-01069373, HAL.
    8. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    9. 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.
    10. 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.
    11. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    12. 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.
    13. Accinelli, Elvio & Covarrubias, Enrique, 2015. "Evolution in a Walrasian setting," MPRA Paper 64736, University Library of Munich, Germany.
    14. 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.
    15. Sawa, Ryoji, 2014. "Coalitional stochastic stability in games, networks and markets," Games and Economic Behavior, Elsevier, vol. 88(C), pages 90-111.
    16. 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.

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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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