Revisiting Marshallian versus Walrasian Stability in an Experimental Market

Junyi Shen, Ken-Ichi Shimomura, Takehiko Yamato, Tokinao Ohtaka and Kiyotaka Takahashi
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Takehiko Yamato: Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology
Tokinao Ohtaka: Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology
Kiyotaka Takahashi: Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology

No DP2015-30, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We study dynamics in pit market trading by a laboratory experiment. Our exchange economy model contains two types of consumers and two kinds of commodities, and three competitive equilibria exist. The two equilibria with the lowest, and the highest relative prices are beneficial for one type of the consumers, and the intermediate price gives an equitable allocation. The theory of Walrasian tatonnement dynamics predicts that relative prices diverge from the intermediate equilibrium towards the lowest equilibrium or the highest equilibrium depending on initial prices. On the other hand, Marshallian quantity adjustment process leads the total supplied volume to the intermediate equilibrium only regardless of initial states. In order to examine how robust the equilibrium selection is, we conducted a manual experiment of pit market trading with different combinations of ethnicities of subjects in Kenya. Our result shows strong support for the convergence to the intermediate equilibrium, which is unstable in Walrasian tatonnement dynamics and is stable in Marshallian quantity adjustment process.

Keywords: Marshallian stability; Walrasian stability; Experiments; Pit market; Kenya (search for similar items in EconPapers)
JEL-codes: C92 D51 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-07, Revised 2016-05
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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