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

## 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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