Towards a Non-Equilibrium Unemployment Theory

This paper presents a non-equilibrium, agent-based model of workers and firms, with on-the-job searching, endogenous entrepreneurial decisions and endogenous wage and income determination. Workers and firms are heterogeneous, and learn their strategy in the labor market. The model is able to reproduce a number of stylized facts generally accepted in labor economics and industrial organization, such as the Wage, Beveridge and Okun curve, and the skewness of wage, income and firm size distribution. Most interestingly, important stylized facts such as a negatively sloped Wage Curve and a constant returns to scale matching function emerge only out-of-equilibrium, during the adjustment processes toward the stationary state. The results stress three points. First, the use of non-equilibrium computational models allows for a more comprehensive investigation of the labor market, by considering the endogenous character of many relevant variables. Second, it may be the case that (some) of the stylized facts upon which many equilibrium models have been built may be just out-of-equilibrium properties of the real economies. Third, the joint determination of all aggregate relationships and their dependence on the equilibrium or non-equilibrium state of the system suggest to move from the investigation of empirical regularities in isolation one from the other to a joint analysis.Unemployment, Entrepreneurship, Firm demography, Simulation, Beveridge, Okun, Wage Curve.

Spatial interactions in agent-based modeling

Agent Based Modeling (ABM) has become a widespread approach to model complex interactions. In this chapter after briefly summarizing some features of ABM the different approaches in modeling spatial interactions are discussed. It is stressed that agents can interact either indirectly through a shared environment and/or directly with each other. In such an approach, higher-order variables such as commodity prices, population dynamics or even institutions, are not exogenously specified but instead are seen as the results of interactions. It is highlighted in the chapter that the understanding of patterns emerging from such spatial interaction between agents is a key problem as much as their description through analytical or simulation means. The chapter reviews different approaches for modeling agents' behavior, taking into account either explicit spatial (lattice based) structures or networks. Some emphasis is placed on recent ABM as applied to the description of the dynamics of the geographical distribution of economic activities, - out of equilibrium. The Eurace@Unibi Model, an agent-based macroeconomic model with spatial structure, is used to illustrate the potential of such an approach for spatial policy analysis.Comment: 26 pages, 5 figures, 105 references; a chapter prepared for the book "Complexity and Geographical Economics - Topics and Tools", P. Commendatore, S.S. Kayam and I. Kubin, Eds. (Springer, in press, 2014

Fat-tailed fluctuations in the size of organizations: the role of social influence

Organizational growth processes have consistently been shown to exhibit a fatter-than-Gaussian growth-rate distribution in a variety of settings. Long periods of relatively small changes are interrupted by sudden changes in all size scales. This kind of extreme events can have important consequences for the development of biological and socio-economic systems. Existing models do not derive this aggregated pattern from agent actions at the micro level. We develop an agent-based simulation model on a social network. We take our departure in a model by a Schwarzkopf et al. on a scale-free network. We reproduce the fat-tailed pattern out of internal dynamics alone, and also find that it is robust with respect to network topology. Thus, the social network and the local interactions are a prerequisite for generating the pattern, but not the network topology itself. We further extend the model with a parameter $\delta$ that weights the relative fraction of an individual's neighbours belonging to a given organization, representing a contextual aspect of social influence. In the lower limit of this parameter, the fraction is irrelevant and choice of organization is random. In the upper limit of the parameter, the largest fraction quickly dominates, leading to a winner-takes-all situation. We recover the real pattern as an intermediate case between these two extremes.Comment: 15 pages, 4 figure

The formation of share market prices under heterogeneous beliefs and common knowledge

Financial economic models often assume that investors know (or agree on) the fundamental value of the shares of the firm, easing the passage from the individual to the collective dimension of the financial system generated by the Share Exchange over time. Our model relaxes that heroic assumption of one unique "true value" and deals with the formation of share market prices through the dynamic formation of individual and social opinions (or beliefs) based upon a fundamental signal of economic performance and position of the firm, the forecast revision by heterogeneous individual investors, and their social mood or sentiment about the ongoing state of the market pricing process. Market clearing price formation is then featured by individual and group dynamics that make its collective dimension irreducible to its individual level. This dynamic holistic approach can be applied to better understand the market exuberance generated by the Share Exchange over time.Comment: 22 pages, 9 figure

An evolutionary complex systems decision-support tool for the management of operations

Purpose - The purpose of this is to add both to the development of complex systems thinking in the subject area of operations and production management and to the limited number of applications of computational models and simulations from the science of complex systems. The latter potentially offer helpful decision-support tools for operations and production managers. Design/methodology/approach - A mechanical engineering firm was used as a case study where a combined qualitative and quantitative methodological approach was employed to extract the required data from four senior managers. Company performance measures as well as firm technologies, practices and policies, and their relation and interaction with one another, were elicited. The data were subjected to an evolutionary complex systems (ECS) model resulting in a series of simulations. Findings - The findings highlighted the effects of the diversity in management decision making on the firm's evolutionary trajectory. The CEO appeared to have the most balanced view of the firm, closely followed by the marketing and research and development managers. The manufacturing manager's responses led to the most extreme evolutionary trajectory where the integrity of the entire firm came into question particularly when considering how employees were utilised. Research limitations/implications - By drawing directly from the opinions and views of managers, rather than from logical "if-then" rules and averaged mathematical representations of agents that characterise agent-based and other self-organisational models, this work builds on previous applications by capturing a micro-level description of diversity that has been problematical both in theory and application. Practical implications - This approach can be used as a decision-support tool for operations and other managers providing a forum with which to explore: the strengths, weaknesses and consequences of different decision-making capacities within the firm; the introduction of new manufacturing technologies, practices and policies; and the different evolutionary trajectories that a firm can take. Originality/value - With the inclusion of "micro-diversity", ECS modelling moves beyond the self-organisational models that populate the literature but has not as yet produced a great many practical simulation results. This work is a step in that direction