Magda Fontana

Computer simulations, mathematics and economics

Economists use different kinds of computer simulation. However, there is little attention on the theory of simulation, which is considered either a technology or an extension of mathematical theory or, else, a way of modelling that is alternative to verbal description and mathematical models. The paper suggests a systematisation of the relationship between simulations, mathematics and economics. In particular, it traces the evolution of simulation techniques, comments some of the contributions that deal with their nature, and, finally, illustrates with some examples their influence on economic theory.

SHIFTING BOUNDARIES IN ECONOMICS: THE INSTITUTIONAL COGNITIVE STRAND AND THE FUTURE OF INSTITUTIONAL ECONOMICS: SHIFTING BOUNDARIES IN ECONOMICS

The paper proposes a critical interpretation of the development of new institutional economics and of its relationship with other economic fields. Consistently with the oil-spot dynamics model, new institutionalism can be described as an enlargement of the mainstream that, in time, seems to further expand towards heterodoxy by branching and specializing. Institutional cognitive economics positions itself at the borders between these two areas. With its focus on the cognitive processes underlying institutional genesis and evolution, it is the result of the integration process between the ideas of new (D.C. North’s in particular) and old institutionalism (T. Veblen’s in particular) plus the injection of F. Hayek’s theories on the link between mind and institutions. Institutional cognitive economics also represents an example of interdisciplinary cross-fertilization that is taking place at the border of social sciences and that might represent the future of our discipline.

Barriers to Switching in Retail Electricity Markets: A Regional Analysis of the Italian Market

The paper analyzes the determinants of switching barriers in a sample of Italian households. Inertia, while depressing consumer engagement and the associated benefits, also reduces competitive pressure in the energy retail free market. After the liberalization of the energy retail market in the European Union, the observed switching rates are relatively low: Identifying the causes of consumer inertia is therefore crucial to achieve the goals set by the European Union in the Three Energy Packages. We use a logistic regression model to discover the causes of consumer inertia as listed in the Aspect of Daily Life Survey (ISTAT 2014). Namely, we take into account: (i) loyalty, (ii) lack of information, (iii) difficulties in evaluating the economic benefits deriving from switching, (iv) perception of small savings from switching and (v) concerns for a worsening of the quality of service in case of switching. The main findings relate awareness—knowledge of the possibility to change the retailer—to the level of education and to the frequency of internet use. In addition, we find that households that are different in numerosity, geographical and urban location and in economic resources tend to attribute inertia to different causes. Among these, the most frequently reported are alleged difficulties in comparing offers and concerns about lower quality of service.

SEARCH IN ARTIFICIAL LABOUR MARKETS: A SIMULATION STUDY

Job search theory involves perfectly rational, maximising actors which make decisions under imperfect information. In the paper we simulate a labour market which works differently: heterogeneous firms and workers interact following rules that place only bounded demands on their computational capacities. We model an adaptive sequential search process in which workers canvass firms. Contrarily to traditional search models, the worker reservation wage is not the optimal one, but it is determined according to individual features such as wealth and skills. Similarly to the simplest search models, search costs are constant and expressed by unit of search. As for firms, we assume that enterprises which require a more educated labour force are willing to pay higher wages and that more skilled workers have higher reservation wage. This allows us to analyse jointly the process of search and the possibility of skill mismatch phenomena. We analyse departures from traditional GE models by means of two versions of the model. In the first one, agents have infinite life, whereas, in the second one, there are demographic and aging processes which affect internal states and decision making of agents. In both versions, we devise various educational and training policies to assess the effect training and formal education on the labour market setting. We stress the relevance of heterogeneity, demography, formal education, and training on the job in determining employment, activity rate, wage, and skill mismatch phenomena by comparing the ACE model with a more traditional general equilibrium model. Results are interesting from both the theoretical and the empirical point of view.