11,114 research outputs found
Honesty and Intermediation: Corporate Cheating, Auditor Involvement and the Implications for Development
We examine self-enforcing honesty in firm-investor relations in an imperfect public information game. Minimum firm size requirements and moral hazard limit ability to raise outside capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains. We propose mandatory disclosure of audit fees and an interpretation of international differences in shareholding patterns. We endogenize auditor-firm collusion and extortion by auditors. We embed our game-theoretic analysis in a general equilibrium model to generate unique equilibria that trace the impact of the distribution of wealth on the existence of the market and consequences for development.Corporate governance, moral hazard, vicious circles, inequality and development, general equilibrium, repeated games.
Portfolio Optimization and Model Predictive Control: A Kinetic Approach
In this paper, we introduce a large system of interacting financial agents in
which each agent is faced with the decision of how to allocate his capital
between a risky stock or a risk-less bond. The investment decision of
investors, derived through an optimization, drives the stock price. The model
has been inspired by the econophysical Levy-Levy-Solomon model (Economics
Letters, 45). The goal of this work is to gain insights into the stock price
and wealth distribution. We especially want to discover the causes for the
appearance of power-laws in financial data. We follow a kinetic approach
similar to (D. Maldarella, L. Pareschi, Physica A, 391) and derive the mean
field limit of our microscopic agent dynamics. The novelty in our approach is
that the financial agents apply model predictive control (MPC) to approximate
and solve the optimization of their utility function. Interestingly, the MPC
approach gives a mathematical connection between the two opponent economic
concepts of modeling financial agents to be rational or boundedly rational.
Furthermore, this is to our knowledge the first kinetic portfolio model which
considers a wealth and stock price distribution simultaneously. Due to our
kinetic approach, we can study the wealth and price distribution on a
mesoscopic level. The wealth distribution is characterized by a lognormal law.
For the stock price distribution, we can either observe a lognormal behavior in
the case of long-term investors or a power-law in the case of high-frequency
trader. Furthermore, the stock return data exhibits a fat-tail, which is a well
known characteristic of real financial data
Response of Firm Agent Network to Exogenous Shock
This paper describes an agent-based model of interacting firms, in which
interacting firm agents rationally invest capital and labor in order to
maximize payoff. Both transactions and production are taken into account in
this model. First, the performance of individual firms on a real transaction
network was simulated. The simulation quantitatively reproduced the cumulative
probability distribution of revenue, material cost, capital, and labor. Then,
the response of the firms to a given exogenous shock, defined as a sudden
change of gross domestic product, is discussed. The longer tail in cumulative
probability and skewed distribution of growth rate are observed for a high
growth scenario.Comment: 8 pages, 9 figures, APFA
THE CURRENT MACROECONOMIC CRISIS
Professor Crotty once casually observed that in his view economics could not be properly thought of as a science. This paper investigates the implications of this view in light of the question of how the scientific method has recently contributed to the evolution of economic practice. It is argued that agent-based models might provide a platform for an integration of recent micro and macroeconomic theories.Agent-based models, macroeconomics, Keynes, James Crotty.
- …