Mistakes in Cooperation: The Stochastic Stability of Edgeworth's Recontracting

Roberto Serrano, Oscar Volij

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

Abstract

We analyse a dynamic trading process of coalitional recontracting in an exchange economy with indivisible goods, where agents may make mistakes with small probability. According to this process, the resistance of a transition from one allocation to another is a function of the number of agents who make mistakes and of the seriousness of each mistake. If preferences are always strict, the unique stochastically stable state is the competitive equilibrium allocation. In economies with indifferences, non-core cycles are sometimes stochastically stable, while some core allocations are not. The robustness of these results is confirmed in a weak coalitional recontracting process.

Original languageEnglish
Pages (from-to)1719-1741
Number of pages23
JournalEconomic Journal
Volume118
Issue number532
DOIs
StatePublished - 3 Oct 2008

ASJC Scopus subject areas

  • Economics and Econometrics

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