Posted: 24 Dec 2000
A model of decentralized markets is studied, in which transactors follow simple adaptive rules. Transactions are coordinated by specialist trading firms that bear the costs of market disequilibrium. Starting from an initially autarkic situation in which none of the institutions that support exchange exist, computer simulation shows that for a wide range of parameter values a fully developed market economy will emerge spontaneously. Moreover, in virtually every case where a market economy develops, one of the commodities traded will emerge as a universal medium of exchange, being traded by every firm and changing hands in every act of exchange.
Keywords: markets, money, transaction costs, organization, intermediation
JEL Classification: E00; P00
Suggested Citation: Suggested Citation
Howitt, Peter and Clower, Robert, The Emergence of Economic Organization. Journal of Economic Behavior & Organization, Vol. 41, No. 1, January 2000. Available at SSRN: https://ssrn.com/abstract=251291