Entrepreneurship, search costs, and ecological rationality in an agent-based economy
Authored by James Caton
Date Published: 2017
DOI: 10.1007/s11138-016-0351-2
Sponsors:
No sponsors listed
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
Since Coase's paper on the firm, transaction costs have occupied much
attention as a field of economic inquiry. Yet, with few exceptions,
neoclassical theory has failed to integrate transaction costs into its
core. The dominant mode of theorizing depends upon Brouwer fixed points
which cannot integrate transaction costs in more than a superficial
manner. Agent-based modeling presents an opportunity for researchers to
investigate the nature of transaction costs and integrate them into the
core of economic theory. To the extent that transaction costs reduce
economic efficiency, they provide opportunities for entrepreneurs to
earn a profit by reducing these costs. We employ an extension of Epstein
and Axtell's (1996) Sugarscape to demonstrate this point one type of
transaction costs: search costs. When agents do not face the cost of
finding a trading partner, the system quickly reaches a steady state
with tightly constrained prices regardless of agent production
strategies. When search costs are present, entrepreneurs may use
competing strategies for production and exchange that allow them to earn
higher revenues than they would earn otherwise. These cost reducing
innovations tend to promote concatenate coordination (Klein 2012). The
agent's production strategies represent technology in the form of mental
models (Denzau and North 1994) that shape agent action with regard to
the agent's environment. The success of these are dependent on their
ability to overcome search costs. The average profit, market rate of
return, earned by each of these mental structures tends to equalize as a
result of competition.
Tags
Evolution
Uncertainty
Agent-Based Computational Economics
Dynamics
Market
Expectations
entrepreneurship
Cascades
Firm
Catallaxy
Ecological rationality
Search costs