Decentralized Trade, Random Utility and the Evolution of Social Welfare

Brown University Economics Working Paper No. 2004-06

17 Pages Posted: 18 May 2005

See all articles by Roberto Serrano

Roberto Serrano

Brown University

Oscar Volij

Ben-Gurion University of the Negev - Department of Economics

Michihiro Kandori

University of Tokyo - Faculty of Economics

Date Written: July 12, 2004

Abstract

We study decentralized trade processes in general exchange economies and house allocation problems with and without money. Such 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 maximizer of several social welfare functions in different variants of the model.

Keywords: decentralized trade, exchange economies, housing markets, stochastic stability, logit model, social welfare functions

JEL Classification: C79, D51, D71

Suggested Citation

Serrano, Roberto and Volij, Oscar and Kandori, Michihiro, Decentralized Trade, Random Utility and the Evolution of Social Welfare (July 12, 2004). Brown University Economics Working Paper No. 2004-06, Available at SSRN: https://ssrn.com/abstract=724221 or http://dx.doi.org/10.2139/ssrn.724221

Roberto Serrano (Contact Author)

Brown University ( email )

64 Waterman Street
Providence, RI 02912
United States
401-863-1036 (Phone)
401-863-1970 (Fax)

Oscar Volij

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel

Michihiro Kandori

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan