Projection of a Heterogenous Agent-Based Production Economy Model to a Closed Dynamics of Aggregate Variables

Journal article, 2015

A model framework that describes a simple production economy is presented, in which the micro-dynamics can be projected to a closed dynamics of aggregate variables. The construction is based on an agent-based model with heterogeneity both regarding pro- duction characteristics and the strategies agents use to predict future prices as a basis for choosing what to produce. The world is divided into a number of regional markets that collect the locally produced goods and via inter-market trade supply regional demands with goods. We discuss the model features that make it possible to project the agent- based micro-dynamics to a closed form dynamics on the level of regionally aggregate quantities. One advantage of such a projection from a high dimensional agent-based dynamics to a low dimensional dynamical system is that the stability characteristics can be analytically approached, and this is illustrated by a derived condition for when a mix of naive and rational agents can stabilize the system. Some illustrations of the general framework in a model of global agricultural land-use are also given.