Chamberlin vs. Smith in Roth (1995)

I found very interesting description in The Handbook of Experimental Economics, Chapter 1: Introduction to Experimental Economics by Prof. Alvin Roth. He refers two pioneering papers on experimental economics, Chamberlin (1948) and Smith (1962), which investigate commodity markets under different trading rules and check whether competitive equilibrium could be established.

[T]he basic design of Chamberlin (1948) for inducing individual reservation prices and aggregate supply and demand curves has become one of the most widely used techniques in experimental economics.

Interestingly, Chamberlin (1948) reports systematic gap between his experimental results and the competitive equilibrium. The experimental design and its results are summarized as follows.

Chamberlin created an experimental market by informing each buyer and seller of his reservation price for a single unit of an indivisible commodity, and he reported the transactions that resulted when buyers and sellers were then free to negotiate with one another in a decentralized market.
<...>
The experiment he reported involved 46 markets, with slightly varying equilibrium prices. He observed that the number of units transacted was greater than the competitive volume in 42 of these markets and equal to the competitive volume in the remaining 4 markets, while the average price was below the competitive price in 39 of these markets and higher in the rest.

By contrast, (repeated) double auctions experimented by Smith (1962) result in convergence to the equilibrium.

One important form of market organization is the double auction market, first experimentally studied by Smith (1962), who observed rapid convergence to competitive equilibrium when the market was repeated several times with stationary parameters.

One might be puzzled why the number of transaction in ALL experiments in Chamberlin (1948) exceed or equal to the competitive volume: none falls below it. My recent article, Equal Market Design I: Competitive Market Achieves the Greatest Happiness of the Minimum Number, provides a theoretical account on this puzzle. This short paper (only 8 pages!) shows that the number of agents who engage in trades under any market equilibrium is MINIMUM among all Pareto efficient and individually rational allocations in the environment where redistribution by the third party is infeasible, i.e., no monetary transfers beyond buyer-seller pairs are prohibited. So, if buyers and sellers in Chamberlin's experiments somehow manage to reach the PE and IR allocations (it is likely although I have to check the original data if available), the number of transaction must be weakly larger than that of competitive equilibrium.


Acknowledgment
I would like to thank Prof. Morimitsu Kurino who pointed out the possible connection between experimental studies and my research, explicitly mentioning the above two papers, i.e., Chamberlin (1948) and Smith (1962).

References
Chamberlin, E. H. (1948). An experimental imperfect market. The Journal of Political Economy, 95-108.
Kagel, J. H. and Roth, A. E. (1995). The handbook of experimental economics. Princeton, NJ: Princeton university press.
Smith, V. L. (1962). An experimental study of competitive market behavior. The Journal of Political Economy, 111-137.
Yasuda, Y. (2016). Equal Market Design I: Competitive Market Achieves the Greatest Happiness of the Minimum Number, mimeo. SSRN#2755893

Review on "The New Geography of Jobs" (by Enrico Moretti)

I found a nice review on the following book written by Aaron M. Renn in his blog:

The New Geography of Jobs by Enrico Moretti

Aaron spells out quite a few suggestions and cautions on the materials, yet his last paragraph below clearly indicates appreciation of what this new book achieved:

Despite a few things I thought could have been more developed or stronger, I think that, as a book making the case for the innovation economy and what it means, The New Geography of Jobs is a strong one, and I again would suggest it to people in cities that have not yet fully found their place in the new century.

Uzawa-Equivalence Theorem

I found an interesting section in a nice intermediate textbook on General Equilibrium Theory by Ross M. Starr:




In Section 18.4 titled "Uzawa-Equivalence Theorem" shows the equivalence of two existence theorems:

1. The existence of equilibrium in an economy characterized by a continuous excess demand function fulfilling Walras' Law 
2. The Brouwer Fixed-Point Theorem

Interestingly, the two apparently distinct results are mathematically equivalent, which is originally shown by Hirofumi Uzawa (1962) in his short note: "Walras' Existence Theorem and Brouwer's Fixed Point Theorem." Economic Studies Quarterly, 8: 59-62.

The importance of the theorem is stressed by Prof. Starr as follows:

What are we to make of the Uzawa Equivalence Theorem? It says that use of the Brouwer Fixed-Point Theorem is not merely one way to prove the existence of equilibrium.  In a fundamental sense, it is the only way. Any alternative proof of existence will include, inter alia, an implicit proof of the Brouwer Theorem. Hence, this mathematical method is essential; one cannot pursue this branch of economics without the Brouwer Theorem. If Walras (1874) provided an incomplete proof of existence of equilibrium, it was in part because the necessary mathematics was not yet available.

The paper is included in this volume of Uzawa's collected papers. (I thank Prof. Kawamura for the information.)

AER (September 2010)

The hard-copy of the American Economic Review (September 2010, link) has arrived in late December, which seems to contain lots of interesting papers (as usual). The following is the list of papers whose titles especially attracted me.

• "Morally Motivated Self-Regulation" by David Baron
• "Are Health Insurance Markets Competitive?" by Leemore Dafny
• "The Law of the Few" by Andrea Galeotti and Sanjeev Goyal
• "Monopoly Price Discrimination and Demand Curvature" by Inaki Aguirre, Simon Cowan and John Vickers
• "Strategic Redistricting" by Faruk Gul and Wolfgang Pesendorfer
• "A Price Theory of Multi-Sided Platforms" by Glen Weyl
• "When Does Communication Improve Coordination?" by Tore Ellingsen and Robert Ostling

I should definitely check them out. They all look really interesting :)

Descriptive and Normative Theories

A great introductory book on decision theory written by a leading authority, professor Itzhak GIlboa, came out recently:



Professor Ehud Kalai at Northwestern University describes this book as follows:

"This book is extremely effective for anyone who wants to acquire quick, basic understanding of old and new concepts of decision theory, with a minimum level of technical details."

In the first chapter, the author indeed effectively explains two essential notions in economics, "descriptive" (sometime called "positive") and "normative" theories:

A descriptive theory is meant to describe reality. For instance, the claim that demand curves slope down attempts to tell us something about the world. Importantly, it does not make a value judgement and takes no stand on whether this feature of the world is good or bad.

A normative theory is a recommendation to decision makers, a suggestion regarding how they should make decisions. For instance, the claim that we should reduce income inequality is a normative claim. Note that the word "normative" does not mean here "the norm in a given society" as it does in other social sciences. The term only says something about the type of interaction between the theorist and the decision maker, namely, that this is an instance in which the former is trying to convince the latter to behave in a certain way.

The author continues to document the role of each theory, which is also very intuitive:

In decision theory it is often the case that a principle can be interpreted either descriptively or normatively. Consider the theory that each economic agent maximizes a utility function. I may propose it as descriptive, namely, arguing that this is a good description of real economic agents. And I may promote it as normative, in which case my claim will be that you would be wise to become such an agent. As a descriptive theory, the principle is tested for its correspondence to reality. The better it fits the data, the more successful it is. As a normative one, the principle should not fit reality. In fact, there is no point in giving decision makers recommendations that they anyway follow. Rather, the test is whether the decision makers would like to follow the principle.

Central Themes on Microeconomics

This is a relatively new textbook on intermediate microeconomics written by two leading scholars in microeconomic/game theory, Douglas Bernheim and Michael Whinston
(See publisher's link for further information):


In the introduction, the authors mention the following eight themes on microeconomics. Four are related to individual decision making, the other four are about the competitive market, which might be helpful for instructors who teach microeconomics.

Central Themes on Decision Making: 

1. Trade-offs are unavoidable
2. Good choices are usually made at the margin
3. People respond to incentives
4. Prices provides incentives

Central Themes on Markets:
5. Trade can benefit everyone
6. The competitive market price reflects both value to consumers and cost to producers
7. Compared to other methods of resource allocation, markets have advantages
8. Sometimes, government policy improve on free-market resource allocation

These themes may look a bit too classical, but the book itself contains new topics such as behavioral economics, strategic interactions (with many examples), competitive policies in oligopoly markets, which reflects the authors' expertise and advantages compared to other rival textbooks.