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

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.

Number of Pages in PDF File: 23

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