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Sequential pairwise trading: convergence and welfare implications

Sequential pairwise trading: convergence and welfare implications This paper characterises the out-of-equilibrium dynamics of a symmetric, pure-exchange economy with two goods and N agents with uniformly distributed preferences and identical endowments. Relaxing the auctioneer assumption, but maintaining a global price rule, sequential random pairwise trading at out-of-equilibrium prices is allowed. Initial mispricing implies rationing, determining excess demand (supply) fading away only at convergence, when the price of the initially cheaper (more expensive) good becomes more expensive (cheaper) than the walrasian one. The system converges when the sequential price reaches the walrasian price evaluated at current updated endowments. A perfectly symmetric setting, by initial mispricing and consequent rationed trading, creates asymmetric allocations even at convergence, where welfare is just slightly lower than auctioneer Pareto one. This model sketches a basis for price over-reaction micro-foundations and captures endogenous `wealth divide' among the population, induced by whether trading is dominated by preferences over goods or by speculation around their prices. Keywords: pairwise-exchange; tatônnement; rationing; mispricing; walrasianequilibrium; sequential-equilibrium; auctioneer; price-overreaction; wealthdivide; ABM; agent-based-models. Copyright © 2016 Inderscience Enterprises Ltd. M-A. Miceli et al. Reference to this paper should be made as follows: Miceli, M-A., Cecconi, F. and Cerulli, G. (2016) `Sequential pairwise trading: convergence and welfare implications', Int. J. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Computational Economics and Econometrics Inderscience Publishers

Sequential pairwise trading: convergence and welfare implications

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Publisher
Inderscience Publishers
Copyright
Copyright © 2016 Inderscience Enterprises Ltd.
ISSN
1757-1170
eISSN
1757-1189
DOI
10.1504/IJCEE.2016.073335
Publisher site
See Article on Publisher Site

Abstract

This paper characterises the out-of-equilibrium dynamics of a symmetric, pure-exchange economy with two goods and N agents with uniformly distributed preferences and identical endowments. Relaxing the auctioneer assumption, but maintaining a global price rule, sequential random pairwise trading at out-of-equilibrium prices is allowed. Initial mispricing implies rationing, determining excess demand (supply) fading away only at convergence, when the price of the initially cheaper (more expensive) good becomes more expensive (cheaper) than the walrasian one. The system converges when the sequential price reaches the walrasian price evaluated at current updated endowments. A perfectly symmetric setting, by initial mispricing and consequent rationed trading, creates asymmetric allocations even at convergence, where welfare is just slightly lower than auctioneer Pareto one. This model sketches a basis for price over-reaction micro-foundations and captures endogenous `wealth divide' among the population, induced by whether trading is dominated by preferences over goods or by speculation around their prices. Keywords: pairwise-exchange; tatônnement; rationing; mispricing; walrasianequilibrium; sequential-equilibrium; auctioneer; price-overreaction; wealthdivide; ABM; agent-based-models. Copyright © 2016 Inderscience Enterprises Ltd. M-A. Miceli et al. Reference to this paper should be made as follows: Miceli, M-A., Cecconi, F. and Cerulli, G. (2016) `Sequential pairwise trading: convergence and welfare implications', Int. J.

Journal

International Journal of Computational Economics and Econometrics – Inderscience Publishers

Published: Jan 1, 2016

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