General equilibrium performance of partial equilibrium mechanisms: an experiment

Takashi Hayashi (University of Glasgow)

May 7, 2019, 11:00–12:30


Room MS 003

Economic Theory Seminar


Partial equilibrium mechanism design separates the problem at hand from the rest of the economy and tries to solve it, assuming ceteris paribus (other things remain equal). This assumption is false in general, since it holds only when preferences are indeed separable across sectors. Thus, if we change something of a partial equilibrium mechanism it has to have a general equilibrium effects across sectors. The current paper is a first attempt to tackle these questions through a controlled laboratory experiment. We do so by constructing a simplest possible setting to extract the nature of the problem, which arises when several sectors use partial equilibrium mechanism separately based on the above-described misspecification. This enables us to test general equilibrium performance of partial equilibrium mechanisms. (with N. Hanaki, M. Lombardi, K. Ogawa)