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

23 Pages Posted: 19 Sep 2008  

Roberto Serrano

Brown University

Oscar Volij

Ben-Gurion University of the Negev - Department of Economics

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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.

Suggested Citation

Serrano, Roberto and Volij, Oscar, Mistakes in Cooperation: The Stochastic Stability of Edgeworth's Recontracting. Economic Journal, Vol. 118, Issue 532, pp. 1719-1741, October 2008. Available at SSRN: https://ssrn.com/abstract=1270308 or http://dx.doi.org/10.1111/j.1468-0297.2008.02187.x

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

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