Net Trades Research Articles

The representation problem and the efficiency of the price mechanism

It is shown in this paper that the way in which an allocation is represented (net trades, final allocation, etc.) can affect the design of any realizing mechanism or incentive compatible system. The reason is that a poor choice of representation may be imposing superfluous conditions and demands upon the realizing mechanism. So, in this paper a technique is developed to (1) find the optimal representation of an allocation, and (2) to characterize the associated, realizing mechanisms. Although this approach is designed to be applied to any smooth economic model, it is illustrated and motivated here by applying it to the price mechanism. More specifically, there are assertions in the literature by Mount and Reiter and by Hurwicz that the price mechanism is informationally efficient over the class of Pareto seeking mechanisms. These proofs are incomplete because they consider only one choice of representation for the Pareto allocations. We use this technique to (a) reassert the dimensional efficiency of the price mechanism, (b) compare mechanisms for spaces of economics with and without externalities, (c) characterize for the space of quadratic functions the other dimensionally efficient allocation concepts, and (d) characterize those two agent economics where the price mechanism is dimensionally efficient.

On supply-constrained equilibria

The paper gives sufficient conditions for the existence of an equilibrium with price rigidities and quantity rationing where: (i) demand is never rationed; (ii) net trades of an a priori chosen numeraire are never rationed; and (iii) supply is rationed only when relative prices are downward rigid.

A condition guaranteeing that the Nash allocation is Walrasian

Consider the set of net trades attainable by an economic agent when he varies his strategy and all other agents stick to their strategies. If all attainable sets for all agents are star shaped with respect to the origin, then every Pareto efficient Nash allocation is Walrasian. This result bears upon the question whether it is possible to implement redistributive goals without impairing efficiency.

Unemployment equilibrium in an economy with linked prices

Wage inflexibility has been widely regarded in modern writing as a cause of unemployment. Almost any Keynesian or non-Walrasian equilibrium which involves equilibrium excess supplies also contain some form of wage or price inflexibility. Yet the micro mechanism of wage inflexibility, its causes and form remains somewhat a mystery. In this paper we study the allocation of resources in an economy in which prices of some goods or services are linked to other goods or services. This is not wage “rigidity” in the traditional sense but it is a form of rigidity which is widely observed. Following the recent literature on non-Walrasian equilibrium (see, for example, Dreze (1975), Barro and Grossman (197 l), Grandmont and Laroque (1976), Malinvaud (1977) and many others) one would expect the allocation to be attained via a set of quantity constraints on net trades. We show in this paper, however, that the allocation mechanism in the economy will not require a general set of limitations on excess supplies and excess demands but rather will tend to have the following two properties:

Nash equilibria of market games: Finiteness and inefficiency

Publisher Summary This chapter discusses that under appropriate conditions, the Nash Equilibria of finite-player strategic market games are generically inefficient. The conditions are: (1) the dimension of each trader's strategy set is at most l — 1, where l is the number of commodities, (2) the mapping from strategies to net trades is sufficiently smooth, and (3) so are the traders' preferences. For concreteness, the chapter presents a specific model—the so-called sell-all model. The traders' preferences are quite standard and not particularly restrictive; a smooth mapping from strategies to net trades is necessary. The chapter presents the analogous finiteness results obtained for the Walras Equilibria of markets by Debreu, Smale, and others.

On equity and efficiency

We investigate the following problem within the context of a simple exchange economy: Will a sequence of fair net trades (wherein each agent prefers his or her trade to that of any other), starting from the equal division allocation, result in a final allocation which is itself fair? The answer is generally negative.

Fair Net Trades

Fair Net Trades