Agent-based Computational Economics Model Research Articles

Coherent or conflicting? Assessing natural gas subsidy and energy efficiency policy interactions amid CO2 emissions reduction in Malaysia electricity sector

One of the negative environmental consequences of natural gas subsidy (NGS) is that it stimulates the substitution from low carbon generating technologies to natural gas, and thus hinders the timely electricity decarbonisation. To manage Malaysia’s energy consumption and consequently reduce its energy-related carbon dioxide (CO2) emission, there has been renewed interest in removing NGS. In policy debates, it is a commonly held belief that NGS stimulates excessive energy consumption, and thus phasing it out would reduce electricity-related greenhouse gas emissions. However, whether this is the real situation and the emission reduction potential of phasing out NGS along with energy efficiency measures are still unanswered. Here we build an agent-based computational economic model with six types of agents (electricity producer, government, consumer, environment, electricity, and fuel markets). A simulation toolbox is developed to explore the dynamics of the electricity sector under different scenarios between 2015 and 2050. It is shown that removing NGS alone cannot lead to low carbon emissions because its removal would only instigate the substitution from low carbon technologies to the coal-fired plants. Two average annual growth rates of electricity demand have been simulated for energy efficiency policies. The simulation results show that the lower the rate of annual demand growth, the lower the growth rate of electricity output, and ultimately, the lower the energy-related CO2 emissions. With these two policies alone, CO2 emissions will continue to grow. Our results finally demonstrate that for the Malaysian government to achieve its emission reduction targets, additional efforts and policies will be required.

Use of artificial intelligence to assess mineral substance criticality in the French market: the example of cobalt

The French public and commercial stakeholders need prospective tools to follow how mineral substances criticality change in the French market. After arguing that such tools should necessarily tackle criticality at a complex level, in particular on multiple scales (e.g., France and the EU), we present the first thematic and methodological discussions of our results from the ongoing design of a methodologically based simulation model on two subfields of artificial intelligence: agent-based computational economics (ACE) and machine learning (ML). In applying this to cobalt, our model aims to assess a supply shortage in France for prospective purposes. More precisely, we model a first individual agent (which is already complex by itself) acting at a country level: France. This model is not yet an ACE model per se since only one agent is designed. Nonetheless, we include ACE in the discussions since the work is a premise of such an end. The discussions also include how well the field accepts the methodology. At a thematic level, our preliminary prospective conclusion is a French cobalt supply shortage, should the case arise, would not be due to the variation of price from the UK, the transit leader of cobalt export to France. At a methodological level, we think the idea of methodologically coupling ML and ACE is necessary. ML is well-known in this field, but mainly for the study of mineral prospectivity in mining. Conversely, ACE covers the value chain but is not yet well known in the field and as such is still not trusted.

The impact of quantitative easing on UK bank lending: Why banks do not lend to businesses?

Abstract The growing proportion of UK bank lending to the financial sector reached a peak in 2007 just before the onset of the Global Financial Crisis (GFC). This marks a trend in the dwindling amount of bank lending to private sector non-financial corporations (PNFCs), which was exacerbated with the Great Recession. Many central banks aimed to revive bank lending with quantitative easing (QE) and unconventional monetary policy. We propose an agent based computational economics (ACE) model which combines the main factors in the economic environment of QE and Basel regulatory framework to analyse why UK banks do not prioritize lending to non-financial businesses. The lower bond yields caused by QE encourage big firms to substitute away from bank borrowing to bond issuance. In addition, the risk weight regime of Basel II/III on capital induces banks to favour mortgages over business loans to small and medium enterprises (SMEs). The combination of lower bond yields and Basel II/III capital requirements on banks, which, respectively, impact demand and supply of credit in the UK, plays a role in the drop of bank loans to businesses. The ACE model aims to reinstate policy regimes that form constraints and incentives for the behaviour of market participants to provide the causal factors in observed macro-economic phenomena.

Physician Emigration: Should they Stay or Should they Go? A Policy Analysis

Physician emigration can either function as an escape valve to help the health labour market clear from a supply surplus, or aggravate the problem further in case of a shortage. Either way, policy-makers should be particularly aware and devise policies to minimize the occurrence of an imbalance in the physician workforce, which may require physician retention policies if barriers to entry and other market rigidities can not be removed. To this purpose we have developed an agent-based computational economics model to analyse physician emigration, and have used it to study the impact of potential short- and long-term retention policies. As a real case study we have calibrated it with data from Portugal, which features a very particular health system with many rigidities. Results show that all policies are capable of increasing the workforce size, but not all reduce emigration. Also, the effect of return migration is non-negligible, and may substantially offset the impact on the workforce size. Furthermore, the welfare impact of the policies varies considerably. Whether policies to retain physicians should be enacted or whether policy makers should let physicians go will depend on the type of imbalance present in the health system.

The Impact of Quantitative Easing on UK Bank Lending: Why Banks Do Not Lend to Businesses?

The growing proportion of UK bank lending to the financial sector reached a peak in 2007 just before the onset of the Global Financial Crisis (GFC). This marks a trend in the dwindling amount of bank lending to private sector non-financial corporations (PNFCs), which was exacerbated with the Great Recession. Many central banks aimed to revive bank lending with quantitative easing (QE) and unconventional monetary policy. We propose an agent based computational economics (ACE) model which combines the main factors in the economic environment of QE and Basel regulatory framework to analyse why UK banks do not prioritize lending to non-financial businesses. The lower bond yields caused by QE encourage big firms to substitute away from bank borrowing to bond issuance. In addition, the risk weight regime of Basel I/II on capital induces banks to favour mortgages over business loans to small and medium enterprises (SMEs). The combination of lower bond yields and Basel II/III capital requirements on banks, which, respectively, impact demand and supply of credit in the UK, plays a role in the drop of bank loans to businesses. The ACE model aims to reinstate policy regimes that form constraints and incentives for the behaviour of market participants to provide the causal factors in observed macro-economic phenomena.

The impact of Basel III on financial (in)stability: an agent-based credit network approach

The Basel III accord reacts to the events of the recent financial crisis with a combination of revised micro- and new macroprudential regulatory instruments to address various dimensions of systemic risk. This approach of cumulating requirements bears the risk of individual measures negating or even conflicting with each other which might lessen their desired effects on financial stability. We provide an analysis of the impact of Basel III’s main components on financial stability in a stock-flow consistent agent-based computational economic model. We find that the positive joint impact of the microprudential instruments is considerably larger than the sum of the individual contributions to stability, i.e. the standalone impacts are non-additive. However, except for the buffers, the macroprudential overlay’s impact is either marginal or even destabilizing. Despite its simplicity, the leverage ratio performs poorly, especially when associated drawbacks are explicitly taken into account. Surcharges on SIBs seem to rather contribute to financial regulations complexity than to the resilience of the system.

The special issue: agent-based computational economics—overview

AbstractThe Knowledge Engineering Review is an outstanding journal in Computer Science. The guest editors and contributors to this Special Issue are economists. Why is this so? In recent years, there has been a growing dialogue between economists and computer scientists, to our mutual benefit. The Special Issue is devoted to nine papers in which economists survey aspects of the field of agent-based computational economics models, and in some cases report on new findings in several areas of application. As such, we hope it has something to offer both computer scientists and economists.

The Implications of Skewed Risk Perception for a Dutch Coastal Land Market: Insights from an Agent-Based Computational Economics Model

Dutch coastal land markets are characterized by high amenity values but are threatened by potential coastal hazards, leading to high potential damage costs from flooding. Yet, Dutch residents generally perceive low or no flood risk. Using an agent-based land market model and Dutch survey data on risk perceptions and location preferences, this paper explores the patterns of land development and land rents produced by buyers with low, highly skewed risk perceptions. We find that, compared to representative agent and uniform risk perception models, the skewed risk perception distribution produces substantially more, high-valued development in risky coastal zones, potentially creating economically significant risks triggered by the current Dutch flood protection policy.

Agent-based approach for generation of a money-centered star network

The history of trade is a progression from a pure barter system. A medium of exchange emerges autonomously in the market, a position currently occupied by money. We investigate an agent-based computational economics model consisting of interacting agents considering distinguishable properties of commodities which represent salability. We also analyze the properties of the commodity network using a spanning tree. We find that the “storage fee” is more crucial than “demand” in determining which commodity is used as a medium of exchange.

Validating Simulation Models: A General Framework and Four Applied Examples

This paper provides a framework for discussing the empirical validation of simulation models of market phenomena, in particular of agent-based computational economics models. Such validation is difficult, perhaps because of their complexity; moreover, simulations can prove existence, but not in general necessity. The paper highlights the Energy Modeling Forum's benchmarking studies as an exemplar for simulators. A market of competing coffee brands is used to discuss the purposes and practices of simulation, including explanation. The paper discusses measures of complexity, and derives the functional complexity of an implementation of Schelling's segregation model. Finally, the paper discusses how courts might be convinced to trust simulation results, especially in merger policy.

FUNCTIONAL MODULARITY IN THE FUNDAMENTALS OF ECONOMIC THEORY: TOWARD AN AGENT-BASED ECONOMIC MODELING OF THE EVOLUTION OF TECHNOLOGY

No matter how commonly the term innovation has been used in economics, a concrete analytical or computational model of innovation is not yet available. This paper argues that a breakthrough can be made with genetic programming, and proposes a functional-modularity approach to an agent-based computational economic model of innovation.

Evolving market structure: An ACE model of price dispersion and loyalty

We present an agent-based computational economics (ACE) model of the wholesale fish market in Marseille. Two of the stylized facts of that market are high loyalty of buyers to sellers, and persistent price dispersion, although it is every day the same population of sellers and buyers that meets in the same market hall. In our ACE model, sellers decide on quantities to supply, prices to ask, and how to treat loyal customers, while buyers decide which sellers to visit, and which prices to accept. Learning takes place through reinforcement. The model explains both stylized facts price dispersion and high loyalty. In a coevolutionary process, buyers learn to become loyal as sellers learn to offer higher utility to loyal buyers, while these sellers, in turn, learn to offer higher utility to loyal buyers as they happen to realize higher gross revenues from loyal buyers. The model also explains the effect of heterogeneity of the buyers. We analyze how this leads to subtle differences in the shopping patterns of the different types of buyers, and how this is related to the behavior of the sellers in the market.

Evolutionary dynamics of currency substitution

This paper examines the issues related to the competition between two currencies in an agent-based computational economic model. The economic environment is a two-country overlapping generations economy with no restrictions on foreign currency holdings. Governments of both countries finance their deficits via seignorage. Agents make decisions about their savings and portfolio decisions. They use the genetic algorithm to update their decision rules. The results presented in the paper show that the currency of the country that finances larger of the two deficits becomes valueless. The adjustment process is characterized by a flight away from the currency used to finance the larger of the two deficits. The economy converges to a stationary equilibrium that corresponds to a single-currency economy.