CONGESTION MODELS WITH CONSISTENT CONJECTURES

This paper demonstrates that, in situations in which a cumulative exte rnality exists, the basic nature and extent of resource misallocation may be substantially less than we imagine. This conclusion stems from deriving consistent conjectures In a unified framework in which conges tion is present. Experiments support the conclusion that, when numbers of agents are small, when there is little heterogeneity among them, a nd when they have the opportunity to observe each other during repeate d experiment, the market allocation may be efficient.