Probability of survival in a random exchange economy with dependent agents

Summary. In this paper I analyze the general equilibrium in a random Walrasian economy. Dependence among agents is introduced in the form of dependency neighborhoods. Under the uncertainty, an agent may fail to survive due to a meager endowment in a particular state (direct effect), as well as due to unfavorable equilibrium price system at which the value of the endowment falls short of the minimum needed for survival (indirect terms-of-trade effect). To illustrate the main result I compute the stochastic limit of equilibrium price and probability of survival of an agent in a large Cobb-Douglas economy. Received June 7, 2001; revised version: January 7, 2002 RID="*" ID="*" I would like to thank Mukul Majumdar and Thomas DiCiccio for helpful discussion and an anonymous referee for valuable comments and suggestions.     

Money as Social Exergy

Synopsis It has been proposed that open thermodynamic systems will act to dissipate available energy gradients by self-organizing into coherent structures that, with time, evolve and develop into nested hierarchies – panarchies – that adapt to internal and external changes according to a characteristic adaptive cycle. This paper seeks to apply these ideas in the purely societal realm by investigating the role of money in economic systems. Money represents the value embodied in goods; a value that is separate from the exact nature of those goods. We suggest that money thereby liberates the ‘free value’ of economic desire and that this free value has properties analogous to energy. The result is the self-organization of structures and systems (‘econosystems’) that dissipate this ‘free value’. Econosystems act at different scales, and nested levels of econosystems form a panarchy, having effects that can be observed. In particular, it appears that money facilitates the creation of relationships between econosystem actors, increasing the connectedness of the econosystems that envelop those actors. We have identified a phenomenon whereby freed social value (i.e. money) can aggregate, or pool, at a larger econosystem scale in structures such as banks. These pools act as gradients that actors at the neighborhood scale can exploit for self-organization in the econosystem. Thus, econosystem actors appear to be freed from thermodynamic constraints by using money as a means of self-organization. However, because of these pools of aggregated social exergy, connectedness is increased at the larger scale of the econosystem. The potential consequence of this dynamic is that money may act to push larger scale econosystems toward a state of heightened vulnerability to collapse, while freeing smaller scale actors from apparent constraints. In this way, we propose that money acts to skew information feedback loops between econosystem actors and larger scale structures such as economies and ecosystems.      

Researching Preferences,Valuation and Hypothetical Bias

A number of recent papers in environmental economics have focused on the process of researching preferences – agents are uncertain about preferences but with effort may narrow their uncertainty. This issue has arisen in formulating bids in contingent valuation (CV) as well as the debate over the divergence between WTP and WTA. In the context of CV, it has been suggested that the hypothetical nature of the preference elicitation process biases responses. This paper provides both a theoretical model and experimental evidence to contribute to this debate. The model is a model of competitive bidding for a private good with two components that are particularly relevant to the debate. The first component is that bidders are unsure of their own value for the private good but may purchase information about their own value (researching preferences). The second component is that there is a probability that the auction is hypothetical – that the winning bidder will not get the private good and will not pay the winning bid. The experiment tests this theoretical model of bidding equilibrium and analyzes the effects of variations in the parameters (hypotheticalness, information costs and number of agents) on the endogenous variables (such as the proportion of bidders who become informed and the winning bid). Experimental results suggest that an increase in the hypotheticalness of an auction tends to decrease the likelihood that bidders pay for information on their valuation with an ambiguous effect on the winning bid.      

Optimal mechanisms for siting noxious facilities

We study Bayesian mechanism design in the context of the siting of noxious facilities. Under incomplete information, we characterize optimal mechanisms facilitating the siting and cost sharing of the facility. These mechanisms are allocatively and Pareto efficient. However, it appears that transfers occur when the good is not provided. This result is due to the weakening of the incentive notion to Bayesian–Nash equilibrium and to the balanced budget condition. This phenomenon disappears if the setting is perfectly symmetric.      

Relative importance of scheduled macroeconomic news for stock market investors

This paper investigates the relative importance of scheduled U.S. macroeconomic news releases for stock valuation. The study focuses on 11 macroeconomic announcements selected on the basis of the previous literature and the Bureau of Labor Statistics classifications of major economic indicators. The paper shows that five out of the 11 announcements have significant influence on stock valuation. These are the Employment Report, NAPM (manufacturing), Producer Price Index, Import and Export Price Indices, and Employment Cost Index. Of these six announcements, the Employment Report and NAPM (manufacturing) exert the greatest influence. The time of the announcement, measured by days from the beginning of the month to the release day, has a moderating impact on the relationship between macroeconomic announcements and its importance.     

Cost Uncertainty and Unilateral Abatement

Unilateral abatement is sometimes advocated in order to set a good example that will make other countries follow. The aim of this paper is to investigate whether existence of correlated cost uncertainty provides an incentive for a country to undertake unilateral abatement. The theoretical model is driven by two main mechanisms; first, a learning effect, as the follower country might reduce its risk premium as it can observe the cost level in the leader country. Second, there is the public good effect, i.e., the marginal benefit of abatement declines when abatement is a public good and other countries contribute to pollution reductions. Results shows that unilateral abatement would be efficient in reducing uncertainty about the unit costs of abatement if a country with low cost uncertainty would undertake abatement first, while a country with initially high cost uncertainty would follow. However, countries may prefer to act simultaneously because of the larger uncertainties that are inherent in a sequential game.      

The knowledge management strategy and the formation of innovative networks in emerging industries

This paper presents an agent-based simulation model with local network externality to analyze strategic interactions over investment on new economic knowledge. R&D knowledge flows and spillovers are the results of non-cooperative games played between neighboring agents in the model. The model demonstrates a situation where no agents have incentives to hide their economic knowledge, a situation that is observed in open source software development projects. The likelihood of obtaining a stable situation where new economic knowledge is openly shared is increased when heterogeneity of agents is introduced.      

The flypaper effect and political strength

Simple models of local government behavior predict equal effects of private income and unconditional federal grants on local government expenditures. Numerous empirical analyses, however, find that the effect of grants is larger than the income effect. We argue that this flypaper effect may be a result of weak political leaderships in multi–issue and multi–party decision–making environments. In multi–issue institutions, a strong political leadership may reduce inefficiency due to interest group influence and inter–party bargaining in the local council. Utilizing data for Norwegian local governments in the 1930s, we find that political strength reduces the size of the flypaper effect. When the local council consists of only one political party, we cannot reject absence of a flypaper effect, while the flypaper effect is large in fragmented local councils. Received: June 2000 / accepted: February 2001     

Action Research is Similar to Design Science

In management information systems (MIS) action research is long considered as promising but low-level research approach. It has an utmost relevance because action researchers are working with practitioners to solve the important practical problem. Design science outlined some years ago is just winning a wider audience. Action research was traditionally classified into qualitative research methods. But it seems to be the “wrong” home of action research. We shall show that after comparison of the seven aspects: concrete results of the study, knowledge produced, activities, the intent and the nature of a study, the division of labor in a study and generation, use and test of knowledge, the concordance between the characteristics of action research on the one hand and of design science on the other hand is very good. Hence, action research and design science should next be considered as similar research approaches, and this is a turning point in the history of both action research and design science.