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American Economic Journal: Microeconomics: Vol. 1 No. 2 (August 2009)

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Trading in Networks: A Normal Form Game Experiment

Article Citation

Gale, Douglas M., and Shachar Kariv. 2009. "Trading in Networks: A Normal Form Game Experiment." American Economic Journal: Microeconomics, 1(2): 114-32.

DOI: 10.1257/mic.1.2.114

Abstract

This paper reports an experimental study of trading networks. Networks are incomplete in the sense that each trader can only exchange assets with a limited number of other traders. The greater the incompleteness of the network, the more intermediation is required to transfer the assets between initial and final owners. The uncertainty of trade in networks constitutes a potentially important market friction. Nevertheless, we find the pricing behavior observed in the laboratory converges to competitive equilibrium behavior in a variety of treatments. However, the rate of convergence varies depending on the network, pricing rule, and payoff function. (JEL C91, C92, G10, G19)

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Authors

Gale, Douglas M. (NYU)
Kariv, Shachar (U CA, Berkeley)

JEL Classifications

C91: Design of Experiments: Laboratory, Individual
C92: Design of Experiments: Laboratory, Group Behavior
G10: General Financial Markets: General (includes Measurement and Data)
G19: General Financial Markets: Other

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