The Emergence of a Price System from Decentralized Bilateral Exchange
نویسنده
چکیده
This paper derives the price system in a model of decentralized bilateral exchange. Out of equilibrium, prices are individual subjective estimates of payoff-maximizing exchange ratios, and hence are the private information of individual agents. We show that a system of public prices emerges in the long run, and these public prices are equilibria of the underlying general equilibrium model. We thus provide, for the first time, a general, decentralized disequilibrium adjustment mechanism that renders market equilibrium dynamically stable in a highly simplified production and exchange economy. Journal of Economic Literature Classifications: D51—Exchange and Production Economies D58—Computable and Other Applied General Equilibrium Economies D82—Asymmetric and Private Information ∗I would like to thank the John D. and Catherine T. MacArthur Foundation for financial support. The computer algorithms used in this paper are available from the author. Affiliations: Santa Fe Institute and Central European University
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