Dynamic processes of social and economic interactions: on the persistence of inefficiencies

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Dynamic processes of social and economic interactions: on the persistence of inefficiencies

Gomes, A.; Jehiel, P.; (2001) Dynamic processes of social and economic interactions: on the persistence of inefficiencies. (ELSE Working Papers 5). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

This paper considers the efficiency and convergence properties of dynamic processes of social and economic interactions such as exchange economies, multilateral negotiations, merger and divestiture transactions, or legislative bargaining. The key general feature of the economy is that agents can implement any move from one state to another as long as a pre-specified subset of agents approve of it. By means of examples, we show that inefficiencies may occur even in the long run. Persistent inefficiencies take the form of cy¬cles between states or of convergence to an inefficient state. When agents are sufficiently patient, we show very generally that the initial state from which the process starts plays no role in the long run properties of equilibria. Also, when there exists an efficient state that is externality free (in the sense that a move away from that state does not hurt the agents whose consent is not required for the move), then the system must converge to this efficient state in the long run. Conversely, long run efficiency can only be attained in a robust way if there exists an efficient externality-free state. It is thus more important to design transitions guaranteeing the existence of an efficient externality-free state rather than to implement a fine initialization of the process.

Type:	Working / discussion paper
Title:	Dynamic processes of social and economic interactions: on the persistence of inefficiencies
Open access status:	An open access version is available from UCL Discovery
Publisher version:	http://else.econ.ucl.ac.uk/newweb/papers.php#2001
Language:	English
Additional information:	Please see htpp://eprints.ucl.ac.uk/12634/ for the version published in the Journal of Political Economy
Keywords:	JEL classification: C70, D50, D70. Dynamic games, multilateral interactions, externalities, efficiency
UCL classification:	UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI:	https://discovery.ucl.ac.uk/id/eprint/14657