The Evolution of Exchange

Oscar Volij (), Asaf Ben-Shoham and Roberto Serrano

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: ABSTRACT: Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models, traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy level.

Date: 2004-02-01
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Published in Journal of Economic Theory, February 2004,

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Journal Article: The evolution of exchange (2004)
Working Paper: The Evolution of Exchange (2000)
Working Paper: The Evolution of Exchange (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:10247

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