JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Stability and Competitive Equilibrium in Trading Networks John William HatfieldUniversity of Texas at Austin Scott Duke KominersHarvard University and University of Chicago Alexandru Nichifor University of St Andrews Michael OstrovskyStanford University Alexander Westkamp Maastricht UniversityWe introduce a model in which agents in a network can trade via bilateral contracts. We find that when continuous transfers are allowed and utilities are quasi-linear, the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure. Furthermore, the set of stable outcomes is essentially equivalent to the set of competitive equilibria, and all stable outcomes are in the core and are efficient. By contrast, for any domain of preferences strictly larger than that of full substitutability, the existence of stable outcomes and competitive equilibria cannot be guaranteed.
No abstract
We show that in general trading networks with bilateral contracts, a suitably adapted chain stability concept (Ostrovsky, 2008) is equivalent to stability (Hatfield and Kominers, 2012; Hatfield et al., 2013) if all agents' preferences are jointly fully substitutable and satisfy the Laws of Aggregate Supply and Demand. We also show that in the special case of trading networks with transferable utility, an outcome is consistent with competitive equilibrium if and only if it is not blocked by any chain of contracts. Moreover, from a computational perspective, checking whether an outcome is chain stable is substantially easier than directly checking whether an outcome is stable.
Various forms of substitutability are essential for establishing the existence of equilibria and other useful properties in diverse settings such as matching, auctions, and exchange economies with indivisible goods. We extend earlier models' definitions of substitutability to settings in which each agent can be both a buyer in some transactions and a seller in others, and show that all these definitions are equivalent. We then introduce a new class of substitutable preferences that allows us to model intermediaries with production capacity. We also prove that substitutability is preserved under economically important transformations such as trade endowments, mergers, and limited liability.
We propose a new set of mechanisms, which we call serial dictatorship mechanisms with reservation prices for the allocation of one indivisible good. We show that a mechanism ϕ satisfies minimal tradability, individual rationality, strategy-proofness, consistency, and non wasteful tie-breaking if and only if there exists a reservation price vector r and a priority ordering such that ϕ is a serial dictatorship mechanism with reservation prices based on r and . We obtain a second characterization by replacing individual rationality with non-imposition. In both our characterizations r, , and ϕ are all found simultaneously and endogenously from the properties. In addition, we show that in our model a mechanism satisfies Pareto efficiency, strategy-proofness, and consistency if and only if it is welfare equivalent to a classical serial dictatorship. Finally, we illustrate how the normative requirements governing the functioning of some real life markets and the mechanisms that these markets use are reasonably well captured by our model and results.JEL classification: C78, D47, D71
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.