Stability and competitive equilibrium in trading networks

John William Hatfield; Scott Duke Kominers; Alexandru Nichifor; Michael  Ostrovsky; Alexander Westkamp

doi:10.1086/673402

Stability and competitive equilibrium in trading networks

John William Hatfield, Scott Duke Kominers, Alexandru Nichifor, Michael Ostrovsky, Alexander Westkamp

Research output: Contribution to journal › Article › peer-review

Abstract

We 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 quasilinear, 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.

Original language	English
Pages (from-to)	966-1005
Number of pages	40
Journal	Journal of Political Economy
Volume	121
Issue number	5
DOIs	https://doi.org/10.1086/673402
Publication status	Published - Oct 2013

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title = "Stability and competitive equilibrium in trading networks",

abstract = "We 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 quasilinear, 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.",

author = "Hatfield, {John William} and Kominers, {Scott Duke} and Alexandru Nichifor and Michael Ostrovsky and Alexander Westkamp",

note = "Kominers thanks the National Science Foundation (grant CCF-1216095 and a graduate research fellowship), the Yahoo! Key Scientific Challenges Program, the John M. Olin Center (a Terence M. Considine Fellowship), the American Mathematical Society, and the Simons Foundation for support. Nichifor thanks the Netherlands Organisation for Scientific Research (grant VIDI-452-06-013) and the Scottish Institute for Research in Economics for support. Ostrovsky thanks the Alfred P. Sloan Foundation for support. Westkamp thanks the German Science Foundation for support.",

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doi = "10.1086/673402",

language = "English",

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journal = "Journal of Political Economy",

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AU - Hatfield, John William

AU - Kominers, Scott Duke

AU - Nichifor, Alexandru

AU - Ostrovsky, Michael

AU - Westkamp, Alexander

N1 - Kominers thanks the National Science Foundation (grant CCF-1216095 and a graduate research fellowship), the Yahoo! Key Scientific Challenges Program, the John M. Olin Center (a Terence M. Considine Fellowship), the American Mathematical Society, and the Simons Foundation for support. Nichifor thanks the Netherlands Organisation for Scientific Research (grant VIDI-452-06-013) and the Scottish Institute for Research in Economics for support. Ostrovsky thanks the Alfred P. Sloan Foundation for support. Westkamp thanks the German Science Foundation for support.

PY - 2013/10

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N2 - We 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 quasilinear, 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.

AB - We 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 quasilinear, 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.

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VL - 121

SP - 966

EP - 1005

JO - Journal of Political Economy

JF - Journal of Political Economy

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Stability and competitive equilibrium in trading networks

Abstract

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