Bin-Tzong Chie

Residential Water Use: Efficiency, Affordability, and Price Elasticity

In practice, water pricing is the main economic instrument used to discourage the wasteful use of residential water. Owing to considerations of affordability, residential water is systematically underpriced because water is essential for life. Such a low price results in water being used inefficiently. This paper proposes a system that supplements the existing price system with a cap-and-trade measure to reconcile conflicts among the goals of residential water use. It forces all people (independent of income) to be faced with reasonable price signals and to use water efficiently. The poor could, however, gain from trade and afford water. By taking advantage of the agent-based model, a simulation of this system applied to Taipei, Taiwan shows that those with lower income per capita are better off under this system even though the equilibrium price of residential water is higher. The simulated average price elasticity of market demand is −0.449.

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.

A Functional Modularity Approach to Agent-based 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.

Social Interactions and Innovation: Simulation Based on an Agent-Based Modular Economy

Using an agent-based modular economic model, we study the effect of social interactions on product innovation and its further impact on competitiveness dynamics. Two firms with different intensities of social interactions are placed in a context of duopolistic competition. The macroscopic analysis based on various criteria, including the market share, profit rate, accumulated capital, waste ratio and consumers’ satisfaction level, indicates that high social interaction within the firm can lead to not only a healthy firm but also a healthy economy. However, this positive result is undermined by the catastrophic nature of the modular economy as shown in the microscopic analysis. Furthermore, the mesoscopic analysis shows that in the long run the duopoly market tends to become a monopolistic market, and there is a non-trivial probability that the low-interaction firm will drive out the high-interaction firm. The risk of innovation in this model may be greater than what the usual economic model may expect.

The Use of Knowledge in Prediction Markets: How Much of Them Need He Know?

In this article, we extend an early agent-based spatial model of the prediction market by taking into account the heterogeneities of agents in their tolerance capacity (tolerance to neighbors with different political identities) and in their exploration capacity (exploration of the political identities of other agents). We then study the effects of these heterogeneities on the behavior of the prediction market, including prediction accuracy, determinants of earnings, and income distribution. First, in terms of prediction accuracy, we find that, compared to the homogeneous case, bringing heterogeneity into the model can generally improve the prediction accuracy, although its statistical significance is limited. In particular, the well-known empirical regularity known as the favorite-longshot bias remains almost unchanged with this extension. Second, through the heterogeneous-agent design, we find that both capacities (personality traits) of agents have a significant positive effect on earnings, and the effect of the exploration capacity is even more dramatic. Third, through their effects on earnings, both capacities also contribute to income inequality, but only to a mild degree with a Gini coefficient of 0.20.

Spatial Modeling of Agent-Based Prediction Markets: Role of Individuals

In this paper, we extend the spatial agent-based prediction market proposed by Yu and Chen at MABS 2011 into a spatial model in which agents choose their community (neighbors) by following Schelling’s proximity model. This extended model generalizes the spatial configuration of the original model and enables us to examine the validity of the Hayek hypothesis when the information distribution is determined by clusters of agents with heterogeneous identities. Specifically, we examine the role of the toleration capacity, the key parameter in the Schelling model, which generates the clusters of agents with different sizes, and the role of exploration capacity which determines how well an agent is informed about his local surroundings. We find that after taking into account market activity and price volatility, both the toleration capacity and exploration capacity have a positive effect on the prediction accuracy and enhance information polling and the information aggregation of markets. The results obtained in this agent-based simulation, therefore, add a qualification to the well-known Hayek hypothesis and point to the significance of individuals in information aggregation.

Income Distribution and Lottery Expenditures in Taiwan: An Analysis Based on Agent-Based Simulation

We investigate the impact of income distribution on lottery expenditures in Taiwan, using an agent-based model developed in [2, 3]. The agents in the model are potential lottery buyers, whose characteristics are described by three features: the percentage of income spent on the lottery, the preferences among lottery numbers selected and the aversion to regret. We used a genetic algorithm to drive the model simulation under agents with different incomes, based on household income data in Taiwan from 1979 to 2003. The simulation results indicated that the impact of income distribution on lottery sales is not significant. This might be due to the Taiwan economy having a minor degree of income variation which has a low effect on lottery expenditures.

Individual Rationality as a Partial Impediment to Market Efficiency

In this chapter we conduct two experiments within an agent-based double auction market. These two experiments allow us to see the effect of learning and smartness on price dynamics and allocative efficiency. Our results are largely consistent with the stylized facts observed in experimental economics with human subjects. From the amelioration of price deviation and allocative efficiency, the effect of learning is vividly seen. However, smartness does not enhance market performance. In fact, the experiment with smarter agents (agents without a quote limit) results in a less stable price dynamics and lower allocative efficiency.

Size Effects in Agent-Based Macroeconomic Models: An Initial Investigation

We investigate the scale-free property of an agent-based macroeconomic model initially proposed by Wright (Physica A, 346:589–620, 2005), called the Social Architecture (SA) model. The SA model has been shown to be able to replicate a number of important features of a macroeconomy, such as patterns concerning economic growth, business cycles, industrial dynamics, and income distribution. We explore whether macroeconomic stylized features resulting from this model are robust when the number of agents populating the (model) economy varies. We simulate the model by systematically varying the agent population with 100, 500, 1,000, 2,000, 4,000, 8,000, and 10,000 agents. Our results indicate that the SA model does exhibit significant size effects for several important variables.

Trust, Growth, and Inequality: An Agent-Based Model

An agent-based model of the investment game is proposed to study the complex dynamics between trust, growth, and inequality with different underlying technologies. It is found that agents in this economy, through learning to trust and to be trustworthy, are able to coordinate themselves well in networking, which hence facilitates wealth creation. The excessive smoothness in economic growth is, therefore, prevalent in all simulations, and the underlying technologies can only determine the speed of growth and network formation. While the advancement of technology can ameliorate the inequality of wealth distribution, it also lowers the social mobility of the agents.