Decentralized trade, random utility and the evolution of social welfare

Michihiro Kandori; Roberto Serrano; Oscar Volij

doi:10.1016/j.jet.2007.02.002

Decentralized trade, random utility and the evolution of social welfare

Michihiro Kandori, Roberto Serrano, Oscar Volij

Department of Economics

Research output: Contribution to journal › Article › peer-review

8 Scopus citations

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.

Original language	English
Pages (from-to)	328-338
Number of pages	11
Journal	Journal of Economic Theory
Volume	140
Issue number	1
DOIs	https://doi.org/10.1016/j.jet.2007.02.002
State	Published - 1 May 2008

Keywords

Decentralized trade
Exchange economies
Housing markets
Logit model
Long-run stochastic stability
Social welfare functions

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.jet.2007.02.002

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title = "Decentralized trade, random utility and the evolution of social welfare",

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.",

keywords = "Decentralized trade, Exchange economies, Housing markets, Logit model, Long-run stochastic stability, Social welfare functions",

author = "Michihiro Kandori and Roberto Serrano and Oscar Volij",

note = "Funding Information: We thank an Associate Editor and three anonymous referees for useful comments, and Ryo Ogawa for his research assistance. Kandori is grateful for research support by JSPS (grant 17530138). Serrano thanks Fundaci{\'o}n Banco Herrero, Universidad Carlos III, the National Science Foundation under grant SES-0133113, and Deutsche Bank for research support, and Universidad Carlos III and CEMFI in Madrid and the Institute for Advanced Study in Princeton for their hospitality. Volij thanks the Spanish Ministerio de Educaci{\'o}n y Ciencia (project SEJ2006-05455) for research support.",

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AU - Volij, Oscar

N1 - Funding Information: We thank an Associate Editor and three anonymous referees for useful comments, and Ryo Ogawa for his research assistance. Kandori is grateful for research support by JSPS (grant 17530138). Serrano thanks Fundación Banco Herrero, Universidad Carlos III, the National Science Foundation under grant SES-0133113, and Deutsche Bank for research support, and Universidad Carlos III and CEMFI in Madrid and the Institute for Advanced Study in Princeton for their hospitality. Volij thanks the Spanish Ministerio de Educación y Ciencia (project SEJ2006-05455) for research support.

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N2 - 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.

AB - 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.

KW - Decentralized trade

KW - Exchange economies

KW - Housing markets

KW - Logit model

KW - Long-run stochastic stability

KW - Social welfare functions

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EP - 338

JO - Journal of Economic Theory

JF - Journal of Economic Theory

IS - 1

ER -

Decentralized trade, random utility and the evolution of social welfare

Abstract

Keywords

ASJC Scopus subject areas

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