Approximating the equilibrium quantity traded and welfare in large markets
Ellen V Muir, Konstantin Borovkov
Stochastic Models | INFORMS | Published : 2017
We consider the efficient outcome of a canonical economic market model involving buyers and sellers with independent and identically distributed random valuations and costs, respectively. When the number of buyers and sellers is large, we show that the joint distribution of the equilibrium quantity traded and welfare is asymptotically normal. Moreover, we bound the approximation rate. The proof proceeds by constructing, on a common probability space, a representation consisting of two independent empirical quantile processes, which in large markets can be approximated by independent Brownian bridges. The distribution of interest can then be approximated by that of a functional of a Gaussian ..View full abstract
Awarded by Australian Research Council
Awarded by ARC
E. Muir's research was supported by the Elizabeth and Vernon Puzey Scholarship and the Australian Research Council through the Laureate Fellowship FL130100039 and the ARC Centre of Excellence for Mathematical and Statistical Frontiers. K. Borovkov's work was supported by the ARC grant DP150102758.