price dynamics financial fragility and aggregate volatility within a standard framework a la arrow debreu we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained we show that depending on the stringency of the financial constraints the model can settle in two very different regimes one characterized by equilibrium the other by disequilibrium and financial fragility we then investigate how the structure of the production network affects the emergence of aggregate volatility from micro level price and financial shocks hence providing a dynamical counterpart to recent results of acemoglu and al 2012

agent based computational transaction cost economics this article explores the use of agent based computational economics ace for modelling the development of transactions between firms transaction cost economics neglects learning and the development of trust ignores the complexity of multiple agents and assumes rather than investigates the efficiency of outcomes efficiency here refers to minimum cost or maximum profit we model how co operation and trust emerge and shift adaptively as relations evolve in a context of multiple interacting agents this may open up a new area of application for the ace methodology a simulation model is developed in which agents make and break transaction relations on the basis of preferences based on trust and potential profit profit is a function of product differentiation specificity of assets economy of scale and learning by doing in ongoing relations agents adapt their trust in a partner as a function of his loyalty exhibited by his continuation of a relation they also adapt the weight they attach to trust on the basis of realized profit the model enables an assessment of the efficiency of outcomes relative to the optimum as a function of trust and market conditions we conduct a few experiments to illustrate this application of ace

redevelopment decisions for commercial and industrial properties abstract the empirical work in this study serves as a test of the principle that redevelopment of a property will occur when the value of the existing bundle plus demolition costs is less than or equal to the price of vacant land the probability of a commercial or industrial property being redeveloped is predicted using the difference in the estimated value of a parcel in its redeveloped state and its current use correcting for sample selection bias the empirical results support the hypothesis that land is redeveloped when its value in the redeveloped state is high relative to its value in the current use

the option value of tax delinquency theory abstract how taxes are enforced matters current enforcement of real property taxes does not consider the option value of delinquency the ultimate penalty is confiscation of property sometime in the future but the value of the property to be confiscated is not known with certainty if redemption fees are sufficiently small it can be optimal to wait and see what the size of the penalty will be before paying taxes we show how this can lead to excessive abandonment and examine proposals for reform

property taxes and urban housing abandonment this paper formulates and estimates an economic mode1 of landlord housing abandonment using new york city data a major focus of the study is to investigate the importance of property taxes in the abandonment decision as opposed to such factors as the types of buildings or the characteristics of households occupying the neighborhood there are two major results first cities can reduce the rate of abandonment by initiating foreclosure as soon as buildings go into arrears on property tax payments rather than allowing a grace period and second property taxes are an important and significant determinant of abandonment rates the benefits and costs of a policy whereby cities would systematically reduce property taxes in blighted neighborhoods by lowering assessment levels are also explored

deep impact geo simulations as a policy toolkit for natural disasters adverse post natural disaster outcomes in low income regions like elevated internal migration levels and low consumption levels are the result of market failures poor mechanisms for stabilizing income and missing insurance markets which force the affected population to respond and adapt to the shock they face in a spatial environment with multiple locations with independent but inter connected markets these transitions quickly become complex and highly non linear due to the feedback loops between the micro individual level decisions and the meso location wise market decisions to capture these continuously evolving micro meso interactions this paper presents a spatially explicit bottom up agent based model to analyze natural disaster like shocks to low income regions the aim of the model is to temporally and spatially track how population distributions income and consumption levels evolve in order to identify low income workers that are food insecure the model is applied to the 2005 earthquake in northern pakistan which faced catastrophic losses and high levels of displacement in a short time span and with market disruptions resulted in high levels of food insecurity the model is calibrated to pre crisis trends and shocked using distance based output and labor loss functions to replicate the earthquake impact model results show how various factors like existing income and saving levels distance from the fault line and connectivity to other locations can give insights into the spatial and temporal emergence of vulnerabilities the simulation framework presented here leaps beyond existing modeling efforts which usually deals with macro long term loss estimates and allows policy makers to come up with informed short term policies in an environment where data is non existent policy response is time dependent and resources are limited

the nature of economics and the failings of the mainstream lessons from lionel robbins s essay lionel robbins in his famous essay on the nature and significance of economic science correctly showed that the task of economics is to develop step by step a realistic comprehension of the economic system based upon the abstract starting point of a theory of value his mistake was to think that the marginal utility theory of value can be and was actually in the process of being developed in a concrete and realistic direction in fact marginal utility theory has not to this day been developed in a concrete and realistic direction and ironically one can find in robbins s cogent exposition of marginal utility theory the reason why it is impossible to do so this reason is not primarily methodological attachment to equilibrium to formalism or some such philosophical attachment to positivism or ideological pro capitalist bias rather the reason is theoretical specifically marginal utility theory can provide no comprehension of the macroeconomic aggregates that drive the reproduction and development of the economic system the implications for contemporary economics are clear utterly unrealistic toy models will persist in economics until an alternative value theory is adopted that is able to justify macroeconomic aggregation these implications ironically bring into consideration the very labour theory of value that robbins had argued to be usurped by marginal utility theory copyright 2012 oup

what s wrong with the fundamental existence and welfare theorems abstract the definition of walrasian competitive equilibrium on which the fundamental existence and welfare theorems rest assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices which further implies that at equilibrium prices the value of each agent s equilibrium commodity bundle is equal to the value of her endowment and equal treatment of agents with the same preferences technology and endowment the logic of the theorems supports the conclusion that in competitive economies prices the allocation of commodities and the distribution of income and material welfare are determined by the preferences technology and endowments of the agents in real world markets however agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices of all agents are close to each other and which exhausts all private opportunities to realize economic surpluses the exchange equilibrium set however is in general a continuum and the exact equilibrium reached depends on the path of transactions in general exchange equilibria do not treat agents with the same preferences and endowments equally and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange but because of transaction path dependence equilibrium prices allocations of commodities and the distribution of wealth and economic welfare are not determined by agents preferences and endowments

the costs of recession a reply pemberton i 995 raises the important issue of what is the most appropriate way to measure business cycle costs from an individual perspective as always in these matters it is not nor should it be a case of outright victory of one side over the other rather it is a question of which approach is the more plausible and on this we would wish to defend our shade of grey as being the more plausible measure this brief reply explains why imagine the simplest possible textbook experiment used to explain some of the principles of expected utility maximisation a prize in our case employed consumption c can be won with a given probability and the alternative is the booby prize of unemployed consumption let c be the expected value of this gamble and let c be the amount for which the player would be indifferent to the gamble the risk premium is then simply the difference between c and c this is exactly what is given by equation 9 in clark et al i994 equation 2 in pemberton s comment where the risk premium is measured as a proportion of employed consumption so there is nothing mysterious about our recession cost measure it is simply the standard textbook risk premium it would seem to us to be a very natural experiment to consider when measuring the cost of agents exposure to risks and we termed it the net cost measure our gross cost measure is given by i c c which is described by our equation 7 this is just the risk premium plus the difference between employed consumption and expected consumption again all measured relative to employed consumption we argued that the gross measure was one which would appeal to keynesians who because they view cycles as disequilibrium events would wish to include losses in consumption as part of the costs pemberton s statement that a high equilibrium natural rate of unemployment is surely a major problem is an implicit endorsement of the keynesian cost measure in our view the net measure because it measures the risk premium obviously abstracts away from any consumption losses as a result of drawing the booby prize this is exactly the same idea as lucas in his proposed cost measure who because of his view that business cycles are equilibrium events does not accept consumption losses as a proper part of costs the lucas measure and our own compare a risky consumption path with a riskless stream our measure differs from lucas however in one important respect from the macro perspective that he adopts the important comparison when measuring economic fluctuations and their impact on the welfare of representative agents is the deviation of consumption from its trend path thus lucas recession cost measure depends on the variance of consumption around that path unusually high aggregate consumption is as costly as unusually low

tax delinquency and abandonment an expanded model with application to industrial and commercial properties this study expands on the literature of residential abandonment by considering five types of industrial and commercial properties and three levels of explanatory variables parcel neighbourhood and city using data for cleveland ohio it shows that tax policies have a limited impact on abandonment instead two categories of variables not previously modelled are significant and policy relevant first the more specialised a property and the greater the cost of conversion to alternative uses the greater the likelihood of tax delinquency and abandonment suggesting policies to ease transition to new uses second abandonment spillovers are highly significant even after accounting for neighbourhood common factors this suggests that spatial solutions such as land use planning may be more effective than tax abatement policies in dealing with abandonment and approaches to abandonment must be differentiated by type of property residential abandonment should be re examined in light of these findings

global stability in a class of markets with three commodities and three consumers abstract the paper gives an estimate of the fraction of initial endowment distributions which result in global stability of a t tonnement process for a class of economies which includes the scarf instability example as a limiting case the measure of such a fraction for our class of economies is necessarily larger than or equal to the corresponding measure for the scarf example itself

the intrinsic fallacy of market mechanism and private property rights in alleviating the tragedy of the commons economists solution to the tragedy of the commons relies on well defined property rights and competitive market mechanism for limiting individuals self serving short sighted actions that result

the dynamics of general equilibrium in walras original description of general equilibrium walras 1954 1874 market clearing was effected by a central authority this authority which has come to be known as the auctioneer remains today because no one has succeeded in producing a plausible decentralised dynamic model of producers and consumers engaged in market interaction in which prices and quantities move towards market clearing levels only under implausible assumptions can the continuous auctioneer dynamic be shown to be stable fisher 1983 and in a discrete model even these assumptions gross substitutability for instance do not preclude instability and chaos in price movements saari 1985 bala and majumdar 1992 1 moreover contemporary analysis of excess demand functions suggests that restrictions on preferences are unlikely to entail the stability of t sonnenschein 1972 1973 debreu 1974 kirman and koch 1986 it has been a half century since debreu 1952 and arrow and debreu 1954 provided a satisfactory analysis of the equilibrium properties market economies yet we know virtually nothing systematic about walrasian dynamics this suggests that we lack understanding of one or more fundamental properties of market exchange this article provides an agent based model of the walrasian economy an agentbased model is a computer simulation of the repeated play of a game in which a large number of agents are endowed with software encoded strategies governing both how they play the game and how they gather information and update their behaviour the disequilibrium behaviour of agents in our agent based models is governed by a replicator dynamic taylor and jonker 1978 in which over time successful agents tend in darwinian fashion to increase in frequency at the expense of unsuccessful agents we describe the process of shifting from lower to higher payoff strategies as imitation

computer simulation for supply demand interaction the most basic result in economics is that for perfect competition equilibrium price and quantity are determined by the intersection of aggregate demand and supply curves how this equilibrium is achieved and the adjustment process have received less attention the adjustment process may be based on aggregate demand and supply curves only via the imaginary actions of an auctioneer or a tatonnement process or on modeling of price and excess aggregate demand interaction such models are less plausible because they assume agents have perfect information about a unique price at which all transactions are concluded alternative assumptions necessitate explicit modeling of individual agents and their search behaviour which increases greatly the level of complication of the model though it is possible to deal with such models analytically stigler 1961 rothschild 1973 fisher 1973 mcafee and mcmillan 1988 special assumptions are needed to obtain desired results lesourne 1992 studies many of these models mostly in a descriptive manner in the framework of self organizing systems dynamic models which explicitly include multiple interacting agents contain many details that are difficult to handle without computers computer simulation makes it possible to include almost any assumption about individual agents and their interactions and to find out the consequences of these assumptions on the path toward equilibrium one of the few examples of such simulation is the work by albin and foley 1992 which deals with geographically dispersed agents with costs of communication applications of computer simulation to other areas of economics can be found in forrester 1961 witt 1986 and orcutt 1990 the current paper describes a computer simulation system that has been organized to enable simulation of interaction using a wide range of assumptions regarding agents search and samples so that the consequences

decentralized dispersed exchange without an auctioneer abstract we stimulate exchange among geographically dispersed agents who face real costs of communication along with bounds to rationality and calculation exchange is entirely decentralized it is initiated by individual agents who broadcast costly messages indicating their interest in trade it is accomplished by bilateral bargaining between pairs of agents agents use the information gained from previous attempts at local trade to calculate their search strategies for succeeding rounds this decentralized mechanism can achieve a substantial improvement in the allocation of resources and the average welfare of agents in comparison with a randomized initial endowment but in comparison with walrasian equilibrium agents who begin with endowments of equal value end up with substantially unequal wealth although the initial inequality of utility is reduced

the complexity of exchange the computational complexity of two classes of market mechanisms is compared first the walrasian interpretation in which prices are centrally computed by an auctioneer recent results on the computational complexity are reviewed the non polynomial complexity of these algorithms makes walrasian general equilibrium an implausible conception second a decentralised picture of market processes is described involving concurrent exchange within transient coalitions of agents these processes feature price dispersion yield allocations that are not in the core modify the distribution of wealth are always stable but path dependent replacing the walrasian framing of markets requires substantial revision of conventional wisdom concerning markets

global instability in experimental general equilibrium the scarf example scarf 1960 proposed a market environment and a model of dynamic adjustment in which the standard tatonnement price adjustment process orbits around rather than converges to the competitive equilibrium hirota 1981 characterized the price paths by the configuration of endowments we explore the predictions of scarf s model in a nontatonnement experimental double auction we find that the average transaction prices in each period do follow the path predicted by the scarf and hirota models when the model predicts prices will converge to the competitive equilibrium our data converge when the model predicts prices will orbit our data orbit the equilibrium and in the direction predicted by the model moreover we observe a weak tendency for prices within a period to follow the path predicted by the model

market excess demand in exchange economies with identical preferences and collinear endowments in this paper we show that up to an arbitrary small neighbourhood of the boundary of the set of prices any given excess demand function can be considered as the excess demand of an economy with any large enough but finite number of individuals having identical preferences moreover the individual endowments can be chosen collinear and in such a way that they yield any arbitrary price independent distribution of relative wealth one of the most striking results in economic theory is that developed by sonnenschein 1972 1973 and perfected by debreu 1974 the question posed by sonnenschein and answered in the affirmative was given any excess demand function f is there a finite number of consumers satisfying all the standard assumptions on preferences whose excess demands sum to f debreu showed that indeed one only needs 1 consumers where 1 is the number of goods in the economy question this result may be considered as extremely negative since it suggests that the standard assumptions on consumer preferences imply no restrictions on the class of excess demand functions that may be observed indeed the hope that by restricting even further our assumptions on individuals we may restrict the class of market excess demand functions seems vain mantel 1974 has shown for example that even if one requires consumers to have homothetic preferences debreu s result still holds a standard objection to this type of result is that in constructing the economy which has f as its excess demand function one may be obliged to choose individuals with very different characteristics if then one restricts the dispersion of preferences or endowments in some way one might reduce the class of possible excess demand functions it has also been suggested that it may be that the initial resources of the individuals have to be chosen so that the income distribution for the economy is highly price dependent hence to confine one s attention to economies with a fixed price independent income distribution might severely restrict the class of resultant excess demand functions taking these points one at a time

the costs of recession a comment using the approach described in the above quotation lucas i987 calculated that the representative consumer would give up only around i io of one per cent of base consumption as the price for eliminating all aggregate fluctuations subsequent work by manuelli and sargent i 988 and with some minor variations imrohoroglu i989 largely confirmed the apparently trivial nature of the business cycle clark leslie and symons i994 henceforth cls have challenged this conclusion using uk data on household consumption patterns they calculate costs for households with various characteristics for the representative household i e with average values for all relevant characteristics the cost is i 63 of base consumption and the mean value across all households is around 2 87 l these much higher costs certainly do not suggest that cycles are trivial cls present some useful and interesting empirical estimates of the impact of unemployment on individual consumption choices however i argue that they draw the wrong conclusion from their data and that the latter imply cyclical costs which are either zero or at least of similar trivial magnitude to lucas s cls assume that an individual is either employed with probability p or unemployed probability i p i use cls s notation throughout consumption in the two states is c and yc o y i respectively the utility function is crra whence expected utility eu is

coordination through social learning in a general equilibrium model this paper analyses coordination through social learning in a general equilibrium model we use a fully decentralized economy in which households and firms exchange labour and consumption goods in the corresponding markets with potential rationing their strategies are updated through an evolutionary learning process based on imitation and random experimenting this learning process induces substantial coordination failures especially between firms which lead almost systematically to below equilibrium output levels and social welfare losses the main underlying mechanism is a self reinforcing uneven distribution of households income which results in a lack of aggregate demand

varieties of agents in agent based computational economics a historical and an interdisciplinary perspective in this paper we trace four origins of agent based computational economics ace namely the markets origin the cellular automata origin the tournaments origin and the experiments origin along with this trace we examine how these origins have motivated different concepts and designs of agents in ace which starts from the early work on simple programmed agents randomly behaving agents zero intelligence agents human written programmed agents autonomous agents and empirically calibrated agents and extends to the newly developing cognitive agents psychological agents and culturally sensitive agents the review also shows that the intellectual ideas underlying these varieties of agents cross several disciplines which may be considered as a part of a general attempt to study humans and their behavior with an integrated interdisciplinary foundation

agents come to bits towards a constructive comprehensive taxonomy of economic entities abstract mirowski mirowski p 2007 markets come to bits evolution computation and markomata in economic science journal of economic behavior and organization 63 209 242 argues for a constructive approach to economic modeling centered on markets as evolving computational entities this essay counters that a broader constructive approach to economic modeling can and should be taken the recent advent of powerful computer technologies supporting agent based modeling abm renders feasible the computational study of economies modeled as evolving systems of interacting agents in abm an agent refers broadly to bundled data and behavioral methods representing an entity constituting part of a computationally constructed world examples of possible agent referents include individuals social groupings institutions e g markets biological entities such as crops and physical entities such as transportation networks and weather consequently abm provides tremendous opportunities for economists and other social scientists to tailor the breadth and depth of the entities represented in their models to the application at hand a simple abm of a two sector decentralized market economy is used for concrete illustration

social learning and monetary policy rules we analyse the effects of social learning in a monetary policy context social learning might be viewed as more descriptive of actual learning behaviour in complex market economies in our model taylor principle governs uniqueness and expectational stability of rational expectations equilibrium ree under homogeneous recursive algorithms we find that the taylor principle is not necessary for convergence to ree minimum state variable msv equilibrium under social learning sunspot equilibria exist in the indeterminate region our agents cannot co ordinate on a sunspot equilibrium in general form specification however they can co ordinate on common factor specification we contribute to the use of genetic algorithm learning in stochastic environments

deleveraging crises and deep recessions a behavioural approach macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings standard micro founded macro economic models account for these patterns through exogenous and persistent shocks in this paper we develop a fully decentralized and micro founded macro economic agent based model augmented with an opinion model which produces endogenous waves of pessimism and optimism that feed back into firms leverage and households precautionary saving behaviour a major emergent property of our model is precisely the complex successions of stable and unstable macro economic regimes the model is further able to account for a wide spectrum of macro and micro empirical regularities within this framework we analyse a series of macro economic phenomena of key relevance in the current macro economic debate especially the occurrence of deleveraging crises and fisherian debt deflation recessions our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation ary path are critical determinants of the severity of the recession and the chances of recovery

sins of the sons of samuelson vision pedagogy and the zig zag windings of complex dynamics abstract the standard economics text is centered on a vision of a naturally self regulated dynamically stable system with a unique global attractor this paper discusses how we got there and how recent developments in the study of dynamical systems allow us to go beyond that it traces the evolution of the teaching of economics from alfred marshall who built his supply and demand framework within a complexity vision of the economy it suggests that that complexity vision was lost as economists formalized the supply demand framework and extended it to the entire economy this paper argues that the current textbook presentation of economics should not and cannot serve as the only intellectual frame we provide to our students

the revenge of homo economicus contested exchange and the revival of political economy recent developments in microeconomic theory have shown that the self interested behavior underlying neoclassical theory is artificially truncated it depicts a charmingly victorian but utopian world in which conflicts abound but a handshake is a handshake but a handshake is not always a handshake studies of principal agent analysis the economics of information radical political economy mechanism design and transactions cost economics have all focused on the difficulties involved in policing and enforcing the actual process of market exchange abandoning the victorian world of neoclassical theory will redirect economists to an older conception of their profession what once was called political economy by taking optimizing more seriously post walrasian economics has inspired a revolution in economic thought fostering both new theoretical departures and alternative conceptions of the capitalist economy we will offer our own interpretation of this literature focusing on the widely recognized fact that the terms arising from exchange are not generally enforceable at zero cost to the exchanging parties where some aspect of the good or service supplied is both valuable to the buyer and costly to provide the absence of third party enforcement of claims gives rise to endogenous enforcement strategies we refer to this relationship as a contested exchange because unlike the transactions of walrasian economics the benefit the parties derive from the transaction depends on their own capacities to enforce competing claims

the costs of recession the paper measures the cost of business cycles by asking what proportion of consumption representative households whose head is currently employed would be prepared to give up to avoid the risk of unemployment previous estimates by lucas suggested that the costs of macroeconomic fluctuations measured in this way are surprisingly small the first part of the paper presents a critique of the lucas aggregate method showing that his estimates are not robust an alternative disaggregated framework is then developed and shows that the costs of macroeconomic fluctuations are significantly higher than those obtained by lucas consequently the view that inflation matters whereas business cycles are unimportant events is questioned copyright 1994 by royal economic society

adaptive consumption behavior abstract in this paper we propose and study a theory of adaptive consumption behavior under income uncertainty and liquidity constraints we assume that consumption is governed by a linear function of wealth whose coefficients are revised each period by a procedure that places few informational or computational demands on the consumer we show that under a variety of settings the procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function