The main purpose of the paper is to show that the process of household formation in a competitive market does not necessarily lead to outcomes that are efficient at the economy level, even assuming that members of each household take efficient collective consumption decisions. To this end, we consider a generalization of the Arrow-Debreu exchange economy model in which endogenous household form...

The idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization (Hurwicz, 1972) and rational expectations (Lucas, 1972). We report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations. In two of the three series (one in which participants trade...

Following up on the work of Megiddo and Vazirani [10], who determined continuity properties of equilibrium prices and allocations for perhaps the simplest market model, Fisher’s linear case, we do the same for: – Fisher’s model with piecewise-linear, concave utilities – Fisher’s model with spending constraint utilities – Arrow-Debreu’s model with linear utilities – Eisenberg-Gale markets.

We study equilibrium selection by evolutionary learning in monotone two-type signalling games. The learning process we study extends that introduced by Young (1993, Econometrica 61, 57–84) to deal with incomplete information and sequential moves; it thus involves stochastic trembles. For vanishing trembles the process gives rise to strong selection among sequential equilibria: if the game has s...

Does not the theory of a general tendency of entropy to diminish [sic 1 ] take too much for granted? To a certain extent it is supported by experimental evidence. We must accept such evidence as far as it goes and no further. We have no right to supplement it by a large draft of the scientific imagination.

Consider the market structures that can be used to solve the problem of allocating resources in a stochastic economy that is an economy whose characteristics depend upon time and uncertainty. Arrow-Debreu contingent markets involve trading all future goods at the initial date: the equilibria of this market structure are well understood [Debreu (1959, ch. 7)]. A second market structure consists ...