Dismantling terrorist networks: Evaluating strategic options using agent-based modeling

Dismantling dark networks remains a critical goal for the peace and security of our society. Terrorist networks are the most prominent instantiation of dark networks, and they are alive and well. Attempts to preemptively disrupt these networks and their activities have met with both success and failure. In this paper, we examine the impacts of four common strategies for dismantling terrorist networks. The four strategies are: leader-focused, grassroots, geographic, and random. Each of these strategies has associated pros and cons, and each has different impacts on the structure and capabilities of a terrorist network. Employing a computational experimentation methodology, we simulate a terrorist network and test the effects of each strategy on the resiliency of that network. In addition, we test scenarios in which the terrorist network has (or does not have) information about an impending attack. Our work takes a structural perspective to the challenge of addressing terrorist networks. Specifically, we show how various strategies impact the structure of the network in terms of its resiliency and capacity to carry out future attacks. This paper also provides a valuable overview of how to use agent-based modeling for the study of complex problems in the terrorism, conflict studies, and security study domains.     

Blockchain and investment: An Austrian approach

The Review of Austrian Economics - Investment is a function of expected profit, which involves calculation of the cost of trust. Blockchain technology is a new institutional technology (Davidson et...     

An Austrian business cycle parable: An educational note

This paper presents a short narrative example intended for use in teaching the Austrian Business Cycle Theory, meant to complement theoretical presentations by presenting an idealized account of an individual entrepreneur operating over time and responding to various possible evolutions of the interest rate. In particular, the similarity from the point of view of the entrepreneur between a reduction in the interest rate due to an increase in consumer saving and a similar reduction due to monetary policy is emphasized. Along with the narrative itself, we discuss the motivating version of the Austrian Business Cycle behind the narrative, as well as offer commentary as explanation for the particular choices made in its construction.     

The economics of immigration: An Austrian contribution

Any managed migration system will fail to achieve the optimal quantity or mix of immigrants because centrally planning the international labor market suffers from the same epistemic problems that make it impossible to optimally plan any market. In response to the artificial relative price structure, imposed by managed migration systems, the domestic stock of human and physical capital becomes distorted. Managed migration systems also set in motion the dynamics of intervention that lead to further interventions into the economy.     

The recession of 1990: An Austrian explanation

Conclusion Deficit spending and money-supply expansion do not eliminate recessions. Theycause recessions. This fact will never be understood unless economists and government policymakers stop trying to micro-manage the economy, and start studying what their actions are doing to the structure of production. Heavy inflation of the money supply followed by sharp cutbacks change the rules right in the middle of the game for millions of businesses in the economy. For the last 40 years, government expansionary policies have stimulated industries to create false and untenable investments. These policies are followed by government corrective actions that destroy those same projects—waste the billions of dollars invested in them, and throw millions out of work. Business cycles are not an essential feature of market capitalism. They are the result of government interference with the market. In the misdirection of labor and the distortion of the structure of production during past business cycles, it was fairly easy to point to the places where the excessive expansion had occurred because it was, on the whole, confined to the capital goods industries... In contrast, the present expansion of money, which has been brought about partly by means of bank credit expansion and partly through budget deficits, has been the result of a deliberate policy, and has gone through somewhat different channels... I do not doubt that in a sense we have today the same kind of phenomenon, but the over-expansion, the undue increase of labor employed in particular occupations, is not confined to a single, clearly defined block such as the capital-goods industries. It is now spread much more widely, and the distribution is much more difficult to describe. It is a field I would wish some statistically minded economist would investigate in order to show how the process operated in particular countries. Friedrich A. Hayek     

Technological progress and market growth: An empirical study based on the quality-ladder approach

This paper develops an extended version of the quality-adder model by allowing for heterogeneous markets. Based on this model, it presents an empirical analysis of innovation-based growth at the market level using a technometric measurement concept. It can be shown that a growth-promoting effect due to technological progress in a particular single year is observed after between 2 and up to 7 years. This is true not only for highly innovative markets but also for those in which fewer R&D resources are invested.     

On myopia as rationale for social security

It has been argued that “paternalistically motivated forced savings constitutes an important, and to some the most important, rationale for social security retirement systems.” This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go (PAYG) social security in dynamically efficient economies. If the competing asset is linear storage and myopic agents are allowed to borrow against future pension benefits, there is no welfare-rationale for PAYG pensions. Sufficiently strong myopia may justify such pensions only if agents cannot borrow against their future pension, but then they are at a zero-saving corner. With enough myopia, co-existence of positive optimal pensions and positive private saving is possible if the return to saving declines with saving, as in a model with a neoclassical technology.     

Competition for foreign direct investment: The role of technology and market structure

We analyze the location choice of a multinational corporation (MNC) between two host countries. We consider both passive and active governments and examine the role of production efficiencies, and of market structure, in the MNC's choice. Our findings include: (i) when the domestic firms export, the country with fewer firms always gets the MNC, but the MNC is indifferent between hosts with firms that have different efficiency levels, (ii) when the domestic firms do not export, the country with more firms gets the MNC if they are sufficiently inefficient, and the MNC locates in the country with less efficient firms.     

An Austrian (Mis)Reads Adam Smith: A critique of Rothbard as intellectual historian

Murray Rothbard's posthumous Economic Thought Before Adam Smith is notable for its vilification of 'the quiet Scottish professor.' While there is little disagreement that Smith was, at best, an ambivalent champion of free markets, Rothbard's indictment of him as a proto-Marxist is less than persuasive. We argue that Rothbard's book suffers from logical flaws, selective and incomplete textual evidence, a misunderstanding of Das Adam Smith Problem and the relevant literature, and an unawareness of modern incentive-based theories of the firm and state anticipated in Book V of The Wealth of Nations.     

The Austrian Tertius Gaudens: A Revisit of Competition Theory in Light of Georg Simmel

Austrian market process theory stands out in assigning particular importance to the role of the customer. This is however not really salient as competition is discussed save for in a few particular instances. This is a pity since the market process discourse thereby deprives itself of a firm progressive footing concerning further elaborations of how market dynamics evolve. By drawing on the reasoning that originates some hundred years ago with the works of Georg Simmel, this paper brings forward an Austrian version of his idea on Tertius Gaudens. In a market context this is the alert buyer who benefits from the disunion that prevails between sellers to the extent that market intimacy, conceived of as supplier specificity, is low. In this manner some of the inner workings of the market process, what promotes competition subject to which institutional constraints, are discussed to the benefit of yet another important Austrian demarcation, that of competition as being geared by the customer.     

The ethics of pure entrepreneurship: An Austrian economics perspective

The Review of Austrian Economics - This paper focuses on the justice of income distribution in a system of private property rights. Milton Friedman argued that the “ethical principle that...     

Fiscal Autonomy and Total Government Expenditure: An Austrian Case-study

The ongoing debate on the efficiency of a federal system versus a centralized system has lead to a diverse and unclear empirical picture of the effects of fiscal decentralization on public sector growth. For analyzing these effects it is crucial to consider the sub-national decision power on taxing and spending. In the current paper, we test for the effects of fiscal autonomy on total government expenditure using time series from 1955 to 2007 for Austria. Determinants of government expenditure are economic growth, fiscal illusion of policy makers, and the unemployment rate. We additionally account for different degrees of sub-national fiscal autonomy. Our econometric results suggest that the often-hypothesized dampening effects of fiscal autonomy cannot be corroborated for the Austrian system.     

Microfoundations and Macroeconomics: An Austrian Perspective by Steven Horwitz

The Review of Austrian Economics -     

A multi-stage race model with strategic interaction: An agent-based simulation approach

We consider a multi-stage race characterized by technological uncertainty and winner-take-all stakes. A number of studies have found that players in such a race tend to behave strategically by adjusting their effort levels according to their relative ranks. The aim of the present study was to examine the dynamics and the results of such interaction. For this purpose, we employed an agent-based computational approach that enabled us to better understand the dynamics of a race, particularly those in which players exhibit heterogeneous behaviors. The results found that strategic interaction decreases the total cost but also results in delaying the completion of a race. Also, it was discovered, larger budgets rather than strategy differences have more significant effects on the probability of players winning a race. Finally, our study suggested that early preemption is an effective strategy that can improve the probability of winning races substantially.     

The economics of Frank H. Knight: An Austrian interpretation

This paper interprets, in the modern Austrian economics perspective, Frank H. Knight's three core contributions; namely, economic methodology, theories of human action, uncertainty and entrepreneurship. Though Knight is regarded as one of the founding fathers of the Chicago School of economics, this paper argues that Knight's contributions are essentially Austrian. Influenced by William James, Henri Bergson and Max Weber, Knight's subjectivist economics can be seen as a link between Carl Menger and Ludwig von Mises in the history of Austrian subjectivism. This paper further suggests that Knight may be more appropriately located in the Austrian-German School, for the reason that the term “Austrian School” is too narrow to accommodate german influences. This paper concludes that Knight's legacies have left much to be appreciated by neoclassical mainstream economists in general and Austrian economists in particular. The author thanks Dian Kwan for her proof reading in this essay.     

Modeling intertemporal general equilibrium: An application to Austrian commercial policy

We present a multi-sector CGE model featuring forward looking investiment and savings behavior within an intertemporal optimization framework. Thus, the model captures several of the intertemporal effects of commercial policy that have been stressed by recent literature on current account adjustment. We argue that pursuing a simulation approach in addressing these issues is warranted by certain limitations and ambiguities of the analytical literature. In addition to presenting the details of the model structure, the paper addresses calibration issues relating to intertemporal parameters. The model is calibrated to a microconsistent data set for the Austrian economy. Finally, the paper features an application of the model to a simple tariff liberalization scenario.     

Risk preference,forecasting accuracy and survival dynamics: Simulations based on a multi-asset agent-based artificial stock market

The relevance of risk preference and forecasting accuracy to the survival of investors is an issue that has recently attracted a number of theoretical studies. By using agent-based computational modeling, this paper extends the existing studies to an economy where adaptive behaviors are autonomous and complex heterogeneous. Specifically, a computational multi-asset artificial stock market corresponding to Blume and Easley [Blume, L., Easley, D., 1992. Evolution and market behavior. Journal of Economic Theory 58, 9–40] and Sandroni [Sandroni, A., 2000. Do markets favor agents able to make accurate predictions? Econometrica 68, 1303–1341] is constructed and studied. Through simulation, we present results that contradict the market selection hypothesis.     

Rock around the clock: An agent-based model of low- and high-frequency trading

We build an agent-based model to study how the interplay between low- and high-frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash crashes. In the model, low-frequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. By contrast, high-frequency traders activation is event-driven and depends on price fluctuations. High-frequency traders use directional strategies to exploit market information produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we find that the presence of high-frequency traders increases market volatility and plays a fundamental role in the generation of flash crashes. The emergence of flash crashes is explained by two salient characteristics of high-frequency traders, i.e., their ability to i. generate high bid-ask spreads and ii. synchronize on the sell side of the limit order book. Finally, we find that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration.     

Resource scarcity,effort allocation and environmental security: An agent-based theoretical approach

It is widely feared that environmental degradation induced by climate change may lead to economic and political insecurity through channels such as resource scarcity and mass migration. In this paper, we have developed an agent-based model to study whether resource scarcity is likely to lead to an increase in the appropriation of resources in environments where adaptive agents can allocate a fraction of their effort to predatory behavior. By enriching a production and conflict model through the introduction of separate product and resource appropriations, we show how boundedly-rational agents capable of learning can update their adaptive expectations and optimize their allocation decisions using a genetic framework. Arising from a few simple rules, the results show a high level of complexity in agents' allocation behavior with outputs ranging from no statistically significant allocation changes to widespread conflict in the environment, depending on the initial conditions and the nature of the scenarios. Overall the results support previous empirical findings that the main link between resource scarcity and conflict is through changes in the distribution of resources rather than their overall availability.