Universität zu Köln

Goeree, Jacob K. and Lindsay, Luke ORCID: 0000-0002-7454-5500 (2016). Market design and the stability of general equilibrium. J. Econ. Theory, 165. S. 37 - 69. SAN DIEGO: ACADEMIC PRESS INC ELSEVIER SCIENCE. ISSN 1095-7235

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Abstract

We employ laboratory methods to study the stability of competitive equilibrium in Scarf's economy (Scarf, 1960). Tatonnement theory predicts that prices are globally unstable for this economy, i.e. unless prices start at the competitive equilibrium they oscillate without converging. Anderson et al. (2004) report that in laboratory double auction markets, prices in the Scarf economy do indeed oscillate with no clear sign of convergence. We replicate their experiments and confirm that tatonnement theory predicts the direction of price changes remarkably well. Prices are globally unstable with adverse effects for the economy's efficiency and the equitable distribution of the gains from trade. We also introduce a novel market mechanism where participants submit demand schedules and prices are computed using Smale's global Newtonian dynamic (Smale, 1976b). If the submitted schedules are competitive sets of quantities that maximize utility taking prices as given the resulting outcome is the unique competitive equilibrium of Scarf's economy. In experiments using the schedule market, prices converge quickly to the competitive equilibrium. Besides stabilizing prices, the schedule market is more efficient and results in highly egalitarian outcomes. (C) 2016 Elsevier Inc. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Goeree, Jacob K. UNSPECIFIED UNSPECIFIED UNSPECIFIED Lindsay, Luke UNSPECIFIED orcid.org/0000-0002-7454-5500 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-264508
DOI:	10.1016/j.jet.2016.04.004
Journal or Publication Title:	J. Econ. Theory
Volume:	165
Page Range:	S. 37 - 69
Date:	2016
Publisher:	ACADEMIC PRESS INC ELSEVIER SCIENCE
Place of Publication:	SAN DIEGO
ISSN:	1095-7235
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language LEARNING COMPETITIVE-EQUILIBRIUM; GLOBAL INSTABILITY; AUCTION MARKETS; INSTITUTIONS; DYNAMICS; BEHAVIOR; EXAMPLE Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/26450