Université de Lausanne
Faculté des
HEC
Département d'économétrie
et d'économie politique
Cahier de recherches économiques du DEEP No. 10.02
Bettina Klaus, Olivier Bochet and Markus Walzl
A Dynamic Recontracting Process for Multiple-Type Housing Markets
February 2010
Abstract
We consider multiple-type housing markets. To capture the dynamic aspect of
trade in such markets, we study a dynamic recontracting process similar to the
one introduced by Serrano and Volij (2008). First, we analyze the set of recurrent
classes of this process as a (non-empty) solution concept. We show that each
core allocation always constitutes a singleton recurrent class and provide examples
of non-singleton recurrent classes consisting of blocking-cycles of individually
rational allocations. For multiple-type housing markets stochastic stability
never serves as a selection device among recurrent classes.
Next, we propose a method to compute the limit invariant distribution of the
dynamic recontracting process. Furthermore, we discuss how the limit invariant
distribution is inuenced by the relative coalitional stability and accessibility
of the different stochastically stable allocations. We illustrate our finndings
with several examples. In particular, we demonstrate that some core allocations
are less likely to be final allocations of the dynamic process than cycles composed
of non-core allocations.
Keywords: core; indivisible goods; limit invariant distribution; stochastic stability
JEL classification: D63 ; D70