Efficient allocations in double auction markets
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Publication:5085155
DOI10.1287/MOOR.2021.1182zbMATH Open1489.91114arXiv2001.02071OpenAlexW3173917835MaRDI QIDQ5085155FDOQ5085155
Authors: Teemu Pennanen 
Publication date: 27 June 2022
Published in: Mathematics of Operations Research (Search for Journal in Brave)
Abstract: This paper proposes a simple descriptive model of discrete-time double auction markets for divisible assets. As in the classical models of exchange economies, we consider a finite set of agents described by their initial endowments and preferences. Instead of the classical Walrasian-type market models, however, we assume that all trades take place in a centralized double auction where the agents communicate through sealed limit orders for buying and selling. We find that, under nonstrategic bidding, the double auction clears with zero trades precisely when the agents' current holdings are on the Pareto frontier. More interestingly, the double auctions implement Adam Smith's "invisible hand" in the sense that, when starting from disequilibrium, repeated double auctions lead to a sequence of allocations that converges to individually rational Pareto allocations.
Full work available at URL: https://arxiv.org/abs/2001.02071
Recommendations
Auctions, bargaining, bidding and selling, and other market models (91B26) Applications of functional analysis in optimization, convex analysis, mathematical programming, economics (46N10)
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