MISTAKES IN COOPERATION: THE STOCHASTIC STABILITY OF EDGEWORTH'S RECONTRACTING

Roberto Serrano () and Oscar Volij ()

Economics Working Papers from Universidad Carlos III, Departamento de Economía

Abstract: In an exchange economy with a finite number of indivisible goods, we analyze a dynamic trading process of coalitional recontracting where agents maymake mistakes with small probability. We show first that the recurrent classes of the unperturbed (mistake-free) process consist of (i) all core allocations as absorbing states, and (ii) non-singleton classes of non-core allocations. Next, we introduce a perturbed process, where the resistance of each transition is a function of the number of agents that make mistakes –do not improve– in the transition and of the seriousness of each mistake. If preferences are always strict, we show that the unique stochastically stable state of the perturbed process is the Walrasian 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.

New Economics Papers: this item is included in nep-gth
Date: 2005-11
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Related works:
Working Paper: MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting (2003)
Working Paper: Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting (2003)
Journal Article: Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:cte:werepe:we056332

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