Market Dynamics in Edgeworth Exchange

Steven Gjerstad ()

Microeconomics from University Library of Munich, Germany

Abstract: Edgeworth exchange is the fundamental general equilibrium model, yet equilibrium predications and theories of price adjustment for this model remain untested. This paper reports an experimental test of Edgeworth exchange which demonstrates that prices and allocations converge sharply to the competitive equilibrium. Price convergence is evaluated with the tatonnement model, interpreted as a disequilibrium model of across- period price adjustment. Subsequently, the extent of within-period adjustment is compared to that of across-period adjustment. Since most observed price adjustment occurs within trading periods, price adjustment data is evaluated with two disequilibrium models of within- period trades. These models are the Geometric Mean model, which is formulated in this paper, and the Hahn process (Hahn and Negishi [1962]). Price dynamics from experiment sessions fit the Geometric Mean model better than the Hahn process, and in addition, the Geometric Mean model provides direction for development of an Edgeworth exchange bargaining model.

Keywords: Competitive equilibrium; disequilibrium dynamics; double auction; Edgeworth exchange; experimental economics; exchange economy; Hahn process; market dynamics (search for similar items in EconPapers)
JEL-codes: C92 D41 D44 D51 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2004-01-19
New Economics Papers: this item is included in nep-exp and nep-mic
Note: Type of Document - pdf; prepared on WinXP; pages: 39; figures: 13
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpmi:0401006

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