Agent's Demand Research Articles

Two-agent proportionate flowshop scheduling with deadlines: polynomial-time optimization algorithms

AbstractVolatility in the supply chain of critical products, notably the vaccine shortage during the pandemic, influences livelihoods and may lead to significant delays and long waiting times. Considering the capital- and time-intensive nature of capacity expansion plans, strategic operational production decisions are required best to address the supply-demand mismatches given the limited production resources. This research article investigates the production scenarios where the demand of one agent must be completed within a specified due date, hereinafter referred to as the deadline, while minimizing the maximum or total completion time of another agent's demand. For this purpose, the Two-Agent Proportionate Flowshop Scheduling Problem with deadlines is introduced. Two polynomial-time optimization algorithms are developed to solve these optimization problems. This study will serve as a basis for further developing this practical yet understudied scheduling problem.

Demand cycles and heterogeneous conformity preferences

We explore the dynamics of demand for n designs of a good when agents have preferences for (anti-)conformity. Agents differ in their social status and each agent seeks to imitate those of higher status and to distinguish herself from those of lower status, relative to her own status. In each period, every agent chooses a design given each agent's demand in the previous period. We show that demand dynamics resemble fashion cycles: The demand for designs is repetitively bell-shaped over time, and, when positively demanded, a design trickles from high- to low-status individuals. At least for n=3, the demand dynamics converge to a unique limit cycle. We obtain a similar (though weaker) convergence result for n=4, and simulations suggest that the result holds for n=4 and 5.

Self-respecting worker in the gig economy: A dynamic principal-agent model

We introduce a dynamic principal-agent model to understand the nature of contracts between an employer and an independent gig worker. We model the worker's self-respect with an endogenous backward-looking participation constraint; he accepts a job offer if and only if its utility is at least as large as his reference value, which is based on the average of previously realized wages. If the dynamically changing reference value capturing the worker's demand is too high, then no contract is struck until the reference value hits a threshold. Below the threshold, contracts are offered and accepted, and the worker's wage demand follows a stochastic process. We apply our model to perfectly competitive and monopsonistic labor market structures and investigate first-best and second-best solutions. We show that a far-sighted employer with market power may sacrifice instantaneous profit to regulate the agent's demand. Moreover, the far-sighted employer implements increasing and path-dependent effort levels. Our model captures the worker's bargaining power by a vulnerability parameter that measures the rate at which his wage demand decreases when unemployed. With a low vulnerability parameter, the worker can afford to go unemployed and need not take a job at all costs. Conversely, a worker with high vulnerability can be exploited by the employer, and in this case our model also exhibits self-exploitation.

Can Unpredictable Risk Exposure Be Priced?

We study the link between beta predictability and the price of risk. An investor who desires exposure to a certain risk factor needs to predict what next period's beta will be. We use a simple model to show that an ambiguity averse agent's demand is lower when betas are hard to predict, leading to a reduction in risk premiums. We test the implications for downside betas and VIX betas. We find that they have economically and statistically small prices of risk once we account for the fact that an investor cannot observe ex-post realized betas when determining asset demand.

Demand Cycles and Heterogeneous Conformity Preferences

Abstract We explore the dynamics of demand for n designs of a good when agents have preferences for (anti-)conformity. Agents differ in their social status and each agent seeks to imitate those of higher status and to distinguish herself from those of lower status, relative to her own status. In each period, every agent chooses a design given each agent's demand in the previous period. We show that demand dynamics resemble fashion cycles: The demand for designs is repetitively bell-shaped over time, and, when positively demanded, a design trickles from high- to low-status individuals. At least for n = 3 , the demand dynamics converge to a unique limit cycle. We obtain a similar (though weaker) convergence result for n = 4 , and simulations suggest that the result holds for n = 4 and 5.

Demand for Public Good As a Correspondence of Cost Shares

In this paper I study optimal demand by an agent who faces a budget constraint that may not be linear. This situation arises in public good economies in which production of the public good does not exhibit constant returns to scale and in which each agent is responsible for a fixed proportion of the cost of whatever quantity of the public good is provided. I define an agent's demand for public good as a correspondence of the cost share so that I include economies in which production of public good exhibits constant returns to scale or the public good is perfectly substitutable by private good. I demonstrate that an agent's demand for the public good decreases as their share of the costs increases and thus extend the law of demand beyond a setting in which agents pay personalized prices for the public good.

An Equilibrium Model of Market Efficiency with Bayesian Learning: Explicit Rates of Convergence to Rational Expectations Equilibrium

A simple discrete-time financial market model is introduced. The market participants consist of a collection of noise traders as well as a distinguished agent who uses the price information as it arrives to update her demand for the assets. It is shown that the distinguished agent's demand converges, both almost surely and in mean square, to a demand consistent with the rational expectations hypothesis, and the rate of convergence is calculated explicitly. Furthermore, the convergence of the standardised deviations from this limit is established. The rate of convergence, and hence the efficiency of this market, is an increasing function of both the risk-free interest rate and the relative number of noise traders in the market. An efficient market, therefore, measured in terms of a high proportion of informed traders, seems incompatible with the notion that efficient markets converge quickly.

Participation and demand levels for a joint project

We examine a voluntary participation game in public good provision in which each agent has a demand level for the public good. The agent's demand level is the minimum level of the public good from which she can receive a positive benefit. In this game, there exists a subgame perfect Nash equilibrium at which the (Pareto) efficient allocation is achieved. The voluntary participation game may also have a subgame perfect Nash equilibrium with underprovision of the public good. However, some subgame perfect Nash equilibrium with the efficient allocation satisfies strong perfection, introduced by Rubinstein (1980), and strong perfection is satisfied only by the subgame perfect Nash equilibrium with the efficient allocation. Furthermore, all payoffs at strong perfect equilibria belong to the core of the enterprise game. By these results, we conclude that in our case, the voluntary participation problem is not as serious as the earlier studies report. We also discuss the extensibility of these results.

Participation and Demand Levels for a Joint Project

We examine a voluntary participation game in public good provision in which each agent has a demand level for the public good. The agent's demand level is the minimum level of the public good from which she can receive a positive benefit. In this game, there exists a subgame perfect Nash equilibrium at which the (Pareto) efficient allocation is achieved. The voluntary participation game may also have a subgame perfect Nash equilibrium with underprovision of the public good. However, some subgame perfect Nash equilibrium with the efficient allocation satisfies strong perfection, introduced by Rubinstein (1980), and strong perfection is satisfied only by the subgame perfect Nash equilibrium with the efficient allocation. Furthermore, all payoffs at strong perfect equilibria belong to the core of the enterprise game. By these results, we conclude that in our case, the voluntary participation problem is not as serious as the earlier studies report. We also discuss the extensibility of these results.

Secure Electronic Marketplaces Based on the Multi Agent System Avalanche

The future of electronic commerce will be shaped by open, heterogeneous and complex structures, consisting of many independent marketplaces. For conducting transactions, businesses have to be present at many of these marketplaces all over the Internet. But software agents, who interact and negotiate on behalf of their human (or organizational) principals, can act as representatives here. The multi-agent system AVALANCHE is a prototype for an agent based secure electronic commerce marketplace environment. The processes are coordinated by the use of autonomous, self-interested software agents, representing consumers and small businesses. The marketplace itself offers a directory service, but never actively influences the agents' activities. The agents communicate by passing messages bilaterally using an iterated contract-net protocol. Businesses who try to sell and buy goods first configure a (mobile) agent in their web browser or PDA and send it to any electronic marketplace to negotiate autonomously. In case that the agent's demand is not met, it can move to other marketplaces in search for a better offer or demand situation. If the agent finds a promising situation, it automatically starts a negotiation process, which will eventually lead to a market transaction. The software agents are able to adapt their changing environment to their negotiation strategies through the use of evolutionary algorithms. Since the agents are conducting their businesses over an open and insecure network, some technical security mechanisms have been implemented. The code-obfuscated agents digitally sign their offers and encrypt their messages. But the self-interested behavior of the agents demands additional mechanisms, which exceed technical security, to ensure co-operational behavior. Currently a reputation tracking mechanism is implemented that evaluates a partner's former transaction behavior and thus influences both partner selection and negotiation strategy for future transactions. In case that an agent plans to conduct a transaction with an unknown agent, it may be able to source the reputation information from either the marketplace or other known agents, depending on the system of information collection, storage, and distribution. This rating of reputation is then updated during the settlement phase of any transaction.

On Market Liquidity and Liquid Balances

Are securities markets more liquid when the economy is more liquid? If so, why? One possibility is that market depth depends on credit constrained intermediaries. This paper offers another explanation, which does not involve frictions or market segmentation. Measuring market illiquidity by the slope of the representative agent's demand curve for a risky asset, I show that this slope is steeper when money-like investments (or liquid balance) represent less of an economy's assets. That is because an exchange of shares for money in such a state induces greater intertemporal substitution than it does when there are more liquid balances. Thus securities' illiquidity fluctuates naturally with the level of real liquidity. This observation has important implication for understanding the causes of market fragility.

Recovering Cardinal Utility

Individual choice under uncertainty depends on an agent's attitudes towards risk, typically represented by his von Neumann-Morgenstern cardinal utility function, u. This function is, of course, an unobservable characteristic. What is, at least in principal, observable is the agent's demand for alternative assets. Problems of prediction and welfare often require conclusions to be drawn concerning the unobservable characteristics based on observable behaviour. To predict the response to a change in the stochastic production plan of a firm, or to determine the compensation necessary so as to avoid a loss in welfare due to a change in the capital tax structure, knowledge of an agent's attitude towards risk is required. It is the purpose of the present paper to demonstrate that, as long as the joint distribution of returns of the available assets is known, the cardinal utility function can be recovered without ambiguity from asset demands, provided that the set of available assets contains a riskless asset. The distinguishing characteristic of the recoverability problem as posed here is the possible incompleteness of markets. In a framework of complete markets, if nominal income and prices vary independently, the range of the demand correspondence can be assumed to cover an open subset of the consumption set. The utility function can then be immediately recovered, up to a monotone transformation, over this range, given mild regularity conditions on demand behaviour. Given incomplete markets, however, this argument fails. Since the choice set is a lower dimensional subspace of state space, we learn only about the agent's preferences within this subspace. We show that the existence of a riskless asset (and some risky asset) implies recoverability of von NeumannMorgenstern preferences, even if markets are incomplete. In the presence of a riskless asset, any positive, riskless level, a, of wealth is demanded for some asset prices. Using arguments from Pratt (1964), the ratio u'(a)/u'(a) can be recovered without ambiguity for all positive (resp. non-negative) values of a, and hence, an integration argument can be used to recover the cardinal utility function, u, up to a positive affine transformation. Beyond the argument based on knowledge of the asset demand correspondence, we explore an alternative approach to recoverability. We demonstrate that knowledge of the portfolio indifference surfaces permits recovery of the cardinal utility function, provided there is a riskless asset. The intuition here is that the agent's risk aversion is directly related to the curvature of the indifference curve around the riskless point and the variance of the risky asset(s). That this approach is in general equivalent to the demand correspondence approach is well known-we give a brief proof for twice continuously differentiable and strictly monotone utility functions. We point out two results concerning the informational requirements of the argument for recoverability. Specifically, the argument does not require complete knowledge of the distribution of returns independently of the asset demands. Instead, it suffices to know the mean and variance of the returns to just one asset other than the riskless, and the return of the riskless asset. Furthermore, if the demand for assets is known only on a subset of the

A note on the recoverability and uniqueness of changing tastes

Abstract This paper demonstrates that it will be impossible, by observing an agent's demand behavior, to either refute or confirm the general taste change hypothesis without substantially restricting the class of eligible preferences.

A Dynamic Programming Model of Demand for Money with a Planned Total Expenditure

RECENT CONTRIBUTIONS BY Eppen and Fama [6, 7], Girgis [10], Miller and Orr [13], Tsiang [21] as well as the present author [5] apply inventory theory to analyze an economic agent's demand for cash arising out of an uncertain time course of cash needs. A feature common to all of them is an implicit assumption that either the economic agent has no plan whatever regarding his total income and expenditure over the period of his planning horizon or, as in Tsiang, his plan over the income period, need not necessarily be realized. Leaving the economic agent's total income and/or expenditure over the planning horizon random in this way, keeps the density functions of net payments due independent from period to period, and no doubt, makes the analysis simpler. It may also have some practical relevance, especially when the income and expenditure plans of the economic unit over the planning horizon are not exact. From a theoretical point of view, however, it seems somewhat unsatisfactory to leave the economic agent's total income and especially his total expenditure over the horizon as random and unplanned. In this paper, we shall, therefore, develop a model of demand for money based on the idea that the economic agent has some income-expenditure plan for the period of his horizon and yet he is not entirely certain about the time course of his cash needs during this period. Patinkin [14] has presented a similar model incorporating the intra-period uncertainty of receipts and payments. Restricting the uncertainty of payments and receipts only with respect to their time course during the leaves Patinkin free to determine the individual's expenditures on goods and services as well as his income for each week by using the well-known Fisherine framework of maximizing the intertemporal utility function of the individual subject to his wealth-constraint, now modified to take into account the (minimum) cost of cash management during each week.2 In this paper, we consider an individual who plans to make a given total