Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency

Ghosal, S., and Porter, J. (2013) Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency. Mathematical Social Sciences, 66(1), pp. 1-21. (doi:10.1016/j.mathsocsci.2012.12.005)

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Abstract

In this paper, we study out-of-equilibrium dynamics with decentralised exchange (bilateral bargaining between randomly matched pairs of agents). We characterise the conditions under which out-of-equilibrium trading converges to efficient allocations when agents are myopic, have limited information and incur utility losses relative to current holdings by engaging in (bounded) experimentation. We show, numerically, that the rate of convergence to efficient allocations is exponential across a variety of different settings where agents’ preferences can be represented by a Cobb–Douglas utility function. Finally the results are generalised to explicit exchange networks.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Ghosal, S., and Porter, J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Mathematical Social Sciences
ISSN:0165-4896
ISSN (Online):1879-3118
Published Online:16 January 2013

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