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Decentralized trade, random utility and the evolution of social welfare

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  • Volij, Oscar
  • Kandori, Michihiro
  • Serrano, Roberto

Abstract

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. The processes are subject to 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

Suggested Citation

  • Volij, Oscar & Kandori, Michihiro & Serrano, Roberto, 2005. "Decentralized trade, random utility and the evolution of social welfare," UC3M Working papers. Economics we056433, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we056433
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    References listed on IDEAS

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    1. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
    2. Ben-Shoham, Assaf & Serrano, Roberto & Volij, Oscar, 2004. "The evolution of exchange," Journal of Economic Theory, Elsevier, vol. 114(2), pages 310-328, February.
    3. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
    4. 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.
    5. 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.
    6. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
    7. Lawrence Blume, 1996. "Population Games," Game Theory and Information 9607001, University Library of Munich, Germany.
    8. 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.
    9. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
    10. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
    11. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    12. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    13. John C. Harsanyi & Reinhard Selten, 1972. "A Generalized Nash Solution for Two-Person Bargaining Games with Incomplete Information," Management Science, INFORMS, vol. 18(5-Part-2), pages 80-106, January.
    14. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
    15. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
    16. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
    17. 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. 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.
    2. 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.
    3. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    4. 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.
    5. 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.
    6. Sylvain Barde, 2009. "The Google thought experiment: rationality, information and equilibrium in an exchange economy," Documents de Travail de l'OFCE 2009-34, Observatoire Francais des Conjonctures Economiques (OFCE).
    7. 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.
    8. 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.
    9. 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.
    10. Sawa, Ryoji, 2014. "Coalitional stochastic stability in games, networks and markets," Games and Economic Behavior, Elsevier, vol. 88(C), pages 90-111.
    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. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    14. 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.
    15. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hc01g3029 is not listed on IDEAS
    16. Accinelli, Elvio & Covarrubias, Enrique, 2015. "Evolution in a Walrasian setting," MPRA Paper 64736, University Library of Munich, Germany.

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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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