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Seller Automata in a Model of Exchange

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  • Richard Stahnke

    (Columbia University)

Abstract

This model simulates a simple exchange economy made up of geographically dispersed agents with spatially correlated initial endowments who incur transactions costs in the process of trading. Agents are able to advertise globally at no cost in order to inform other agents of potential trading opportunities, but they must pay a transaction cost proportional to the distance traveled to visit an agent in order to engage in trade. Although trade is shown to improve the efficiency of the economy in most cases, the accuracy of advertised information depreciates so rapidly in the process of trading that there is a range of transaction costs where efficiency actually falls as a result of trade. Increasing transaction costs diminish this depreciation of information by curtailing trade, and this trade-off results in a range of transaction costs where efficiency is not decreasing in transaction costs. The effect of trade on inequality depends on the measure of wealth. The presence of highly spatially correlated initial endowments is shown to diminish slightly the benefits of trade relative to the randomly allocated initial endowments case.

Suggested Citation

  • Richard Stahnke, 1999. "Seller Automata in a Model of Exchange," Computing in Economics and Finance 1999 1353, Society for Computational Economics.
    • Handle: RePEc:sce:scecf9:1353
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    References listed on IDEAS

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    1. Albin, Peter & Foley, Duncan K., 1992. "Decentralized, dispersed exchange without an auctioneer : A simulation study," Journal of Economic Behavior & Organization, Elsevier, vol. 18(1), pages 27-51, June.
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