Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting

Roberto Serrano and Oscar Volij ()

No 29, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: In an exchange economy with a finite number of indivisible goods, we analyze a dynamic trading process of coalitional recontracting where agents may make 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) cycles 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.

Keywords: Stochastic Stability; Exchange Economies; Assignment Problems; Core; Walrasian Equilibrium (search for similar items in EconPapers)
JEL-codes: C7 D51 D61 D63 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2003-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting (2008)
Journal Article: Mistakes in Cooperation: The Stochastic Stability of Edgeworth's Recontracting (2008)
Working Paper: Mistakes in cooperation: the stochastic stability of edgeworth's recontracting (2005)
Working Paper: MISTAKE IN COOPERATION:the Stochastic Stability of Edgeworth's Recontracting (2003)
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