The Emergence of a Price System from Decentralized Bilateral Exchange

Herbert Gintis ()

The B.E. Journal of Theoretical Economics, 2006, vol. contributions.6, issue 1

Abstract: This paper analyzes the dynamics of completely decentralized bilateral exchange. In such a framework, neither money nor prices as public information exist. Rather, prices represent an agent's barter strategy, and hence are private information. We call these private prices. Agents formulate trade offers and accept or reject offers from other traders, on the basis of their private prices. Private prices are updated by low-scoring agents periodically imitating the strategies of higher-scoring agents. We show that a system of quasi-public prices emerges in the medium run, and these quasi-public prices converge to stationary distributions that are approximately competitive equilibria of the underlying Walrasian model in the long run. We thus provide, for the first time, a general, decentralized disequilibrium adjustment mechanism that renders market equilibrium dynamically stable in a highly simplified production and exchange economy.

Keywords: price system dynamics; agent-based exchange (search for similar items in EconPapers)
JEL-codes: D51 D58 D82 (search for similar items in EconPapers)
Date: 2006

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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejtec:v:contributions.6:y:2006:i:1:n:13

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