Difference between revisions of "Papers on Economic Agent-Based simulation"

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==Constructive Modeling of Decentralized Market Economies: An Agent-Based Computational Economics Approach==
 
Presentation given by Leigh Tesfatsion
 
 
A presentation on the general working of agent-based economic simulation.
 
 
*Difficulty of modeling real world dynamic economic systems
 
**Distributed local interactions
 
**Strategic behavior and uncertainty
 
**Institutional constraints
 
*Previously, assumed everyone rational, so no need to look deeper into cognition and social interactions
 
*Agent-Based Computational Economics (ACE)
 
**Economic world with various agent types
 
***Agents adapt behavior, communicate, learn to complete goals
 
**Set initial conditions
 
**World develops over time
 
**Events driven by agent interaction
 
*ACE research
 
**Empirical Understanding
 
***Explanation for persistently observed empirical regularities
 
***Are these trends always observed in the models?
 
**Market Design
 
***Efficient, fair, and orderly social outcomes?
 
***Even if agents try to ‘game’ the system?
 
**Qualitative Analysis
 
***What are the performance capabilities?
 
***Does coordination occur?
 
*Starting point
 
**Two-sector Walrasian equilibrium economy
 
***No imposing equilibrium conditions
 
***Agent driven production, pricing, and trading
 
***Does equilibrium emerge?
 
**Look for market organization
 
***How does trading occur?
 
***Bilateral or mediated trade?
 
****Mediators: brokers (no inventory) and dealers (inventory)
 
**Mediated markets: auction (central, clearing houses), OTC (not central, managed by dealers), exchanges (mix)
 
**Look for learning behavior
 
***Price/quantity discovery process
 
***Buyer-seller interaction networks?
 
****Long term relationships: trust?
 
****Trading
 
*****Terms of trade
 
*****Seller-buyer matching
 
*****Trade
 
*****Settlement
 
*****Manage longer term relationships
 
*Illustration by Hash-and-Beans economy
 
**Learning method can matter
 
*Issues
 
**Setting initial conditions?
 
***Carrying capacity
 
***Market clearing
 
***Market efficiency
 
*Disadvantages
 
**Intensive experiments often needed
 
**Multi-peak rather than central-tendency outcome distributions can arise
 
**Difficult to learn and build platform
 
*Advantages
 
**Permits systematic study of behavior and markets
 
**Can look at interesting problems and get quick feedback
 
 
The presentation can be found [http://www.econ.iastate.edu/tesfatsi/ACEIntro.Econ502.pdf here].
 
 
 
==Introduction to Walrasian General Equilibrium Modeling==
 
==Introduction to Walrasian General Equilibrium Modeling==
 
Paper by Tesfatsion (8/06/08)
 
Paper by Tesfatsion (8/06/08)

Revision as of 04:09, 1 December 2008

Introduction to Walrasian General Equilibrium Modeling

Paper by Tesfatsion (8/06/08)

  • Decentralize market economies are complex dynamic systems made up of micro agents taking part in local interactions.
    • This creates global regularities
      • e.g. employment and growth rates, income distributions, market institutions, and social conventions
      • Creates interdependent feedback loops
  • Walrasian equilibrium model common way macroeconomists model the economy
    • Consists of finite profit-maximizing firms, finite consumers with exogenously determined preferences, and a Walrasian Auctioneer
    • 9 Basic Assumptions for Walrasian Equilibrium Model
      • 1)Fixed finite number of consumption and capital goods. All goods are private, excludable, and rival
      • 2)Fixed number of consumer agents with preferences over different bundles of goods and nonnegative initial endowments of capital goods and labor
      • 3)Preferences of consumer can be represented by a utility function
      • 4)Fixed number of firms
      • 5)Income of consumers comes from dividends and sale of services
      • 6)Markets are complete
      • 7)Consumers take prices as given
      • 8)Firms take prices as given
      • 9)All purchase and sale agreements are costlessly arranged and enforced
  • Simple WGE Illustration
    • The market is said to be a Walrasian equilibrium if it satisfies the following four conditions
      • At a specific vector e* comprising consumer supplies and demands for services and consumption goods, firm demands and supplies for services and consumption goods, non negative prices, expected prices, and expected dividends
        • Each consumer is maximizing his utility and each firm is maximizing its profits
        • Expected prices coincide with actual prices and expected dividends coincide with actual dividends
        • Excess supply is greater than or equal to zero
        • The total value of excess supply is zero
  • Pareto Efficiency and the First Welfare Theorem
    • How do we measure a person's welfare?
      • Productive efficiency vs. Pareto-effiency
      • Any Walrasian economy is Pareto efficient
  • Robustness of the WGE
    • The Walrasian general equilibrium model eliminates the need for economic agents to interact strategically
    • Three Questions
      • 1)How might strategic interaction become important if firms set prices for their inputs and outputs?
      • 2)How might expectations and learning rules become important if firms set prices for their inputs and outputs?
        • Information exploitation and exploration
      • 3)How might bankruptcy rules, rationing rules, and inventory management become important if firms set prices for their inputs and outputs?

The paper can be found here.


Non-Walrasian Equilibrium: Illustrative Examples

Paper by Tesfatsion (7/31/08)

  • Do all markets always clear, or can there be equilibrium without total market clearing?
  • Keynesian equilibrium
    • Those with incentive to change state have no power to, those who have power to change stare have no incentive
    • Multiple possible equilibrium states
  • Signaling problems
    • Incomplete signaling
      • Do not signal what future actions might be, so others have to make investment decisions that might be wrong
    • Signaling not credible
      • Even if signal today, not credible unless backed today by purchasing power
  • Dynamic Stochastic General Equilibrium (DSGE) Model
    • Allows disequilibrium, due to shocks
    • Equilibrium would exist without shocks
    • Tends toward equilibrium in the long run
  • Involuntary Unemployment
    • Wage/labor not in equilibrium
    • Those with incentive to change state have no power to, those who have power to change stare have no incentive
      • Unemployment equilibrium
    • Optimism/pessimism about future signals can affect this equilibrium
  • Demand Signaling
    • How do customers signal future demand?
    • Need current purchasing power to
    • Liquidity constraints
    • Clower: liquidity and credit constraints can lead to persistent involuntary unemployment due to signaling problems
      • People can’t work as much as they want
      • Can’t borrow vs. future income
  • Effective Equilibrium
    • Holds given
      • Consumer and firm on effective demand and supply curves
      • All price and dividend expectations are fulfilled
      • Effective supply is at least at great as effective demand
    • Firm as price taker in wage
      • Would not lower unless perceived high employment supply
  • Coordination Failure
    • Mutual gains not realized because no individual has incentive to change from current behavior
    • Can be Nash Equilibrium, but not Pareto efficient

The paper can be found here.


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