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Published August 9, 2017 | Submitted
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Global Instability in Experimental General Equilibrium: The Scarf Example

Abstract

Scarf (1960) proposed a market environment and a model of dynamic adjustment in which the standard tatonnement price adjustment process orbits around, rather than converges to, the competitive equilibrium. Hirota (1981) characterized the price paths by the configuration of endowments. We explore the predictions of Scarf's model in a nontatonnement experimental double auction. We find that the average transaction prices in each period do follow the path predicted by the Scarf and Hirota models. When the model predicts prices will converge to the competitive equilibrium, our data converge; when the model predicts prices will orbit our data orbit the equilibrium, and in the direction predicted by the model. Moreover, we observe a weak tendency for prices within a period to follow the path predicted by the model.

Additional Information

The financial support of the National Science Foundation and the Caltech Laboratory for Experimental Economics and Political Science is gratefully acknowledged. Mason Porter and Daniel Song contributed to the early stages of the research. Helpful comments were received from Mahmoud El-Gamal, Dave Grether and Daniel Rowe and from audiences in Hong Kong, Osaka, Otaru, and the Caltech-UCLA Freeway Conference on Experimental Economics. Mason Porter and Daniel Song contributed to the project during the early stages of the research. Published as Anderson, C.M., Plott, C.R., Shimomura, K.I., & Granat, S. (2004). Global instability in experimental general equilibrium: the Scarf example. Journal of Economic Theory, 115(2), 1-7.

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August 21, 2023
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March 5, 2024