Title: Sequential pairwise trading: convergence and welfare implications

Authors: Maria-Augusta Miceli; Federico Cecconi; Giovanni Cerulli

Addresses: Faculty of Economics, Department of Economics and Law, Sapienza University of Rome, 9, via del Castro Laurenziano, Rome 00161, Italy ' ISTC-CNR (Institute of Cognitive Sciences and Technologies), 44, via S. Martino della Battaglia, Rome 00185, Italy ' IRCRES-CNR, 19 via dei Taurini, Rome 00185, Italy

Abstract: This paper characterises the out-of-equilibrium dynamics of a symmetric, pure-exchange economy with two goods and N agents with uniformly distributed preferences and identical endowments. Relaxing the auctioneer assumption, but maintaining a global price rule, sequential random pairwise trading at out-of-equilibrium prices is allowed. Initial mispricing implies rationing, determining excess demand (supply) fading away only at convergence, when the price of the initially cheaper (more expensive) good becomes more expensive (cheaper) than the Walrasian one. The system converges when the sequential price reaches the Walrasian price evaluated at current updated endowments. A perfectly symmetric setting, by initial mispricing and consequent rationed trading, creates asymmetric allocations even at convergence, where welfare is just slightly lower than auctioneer Pareto one. This model sketches a basis for price over-reaction micro-foundations and captures endogenous 'wealth divide' among the population, induced by whether trading is dominated by preferences over goods or by speculation around their prices.

Keywords: pairwise exchange; tatônnement; rationing; mispricing; Walrasian equilibrium; sequential equilibrium; auctioneer assumption; price overreaction; wealth divide; ABM; agent-based modelling; pairwise trading; convergence; welfare; agent-based systems; mulit-agent systems; MAS; out-of-equilibrium dynamics; goods preferences; price speculation.

DOI: 10.1504/IJCEE.2016.073335

International Journal of Computational Economics and Econometrics, 2016 Vol.6 No.1, pp.13 - 43

Available online: 15 Nov 2015 *

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