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Subject:

A problem and an introduction

From:

Dan Olner <[log in to unmask]>

Reply-To:

[log in to unmask]

Date:

Tue, 22 Aug 2006 20:47:12 +0100

Content-Type:

text/plain

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text/plain (142 lines)

Greetings all,

If I may, I just want to introduce myself, and then present you with a problem.
I'm hoping that people on these lists will be able to point us in the right
direction / avoid me trying to re-invent the wheel.

Apologies if this is of no interest to you - please ignore!

My name's Dan Olner, and I'm about to start a PhD at Leeds University Geography
department, examining

a) the extent to which economies self-organise (looking at Hayek's notion that
the economy is a 'spontaneous order' that planners tamper with at their
peril);
b) how physical space should affect our understanding of this;
c) how complex computer systems are themselves integrating into economic
systems, and perhaps changing the range of control that firms and governments
have over economic processes within their domain.

I'm very interested also in the way theory - and especially scientific thinking
- impacts upon politics. Science can often be used as a figleaf to hide one's
political beliefs, or used to unsavoury ends (e.g. Darwinism.) But equally,
genuine insights flow from economics and modelling to politics. Is there any
way to help us understand what's a good application of mathematical or
scientific work in politics?

My blog, if anyone's interested, is where I'll be writing about problems and
ideas as they arise (though just right now, the server went down...!) - 

www.coveredinbees.org

Note: though I say I'm *going* to be doing these things, currently I can only
get Java to tell me '99 to 0 bottles of beer on the wall' and have at best a
tenuous grip on analytical math methods. I'm a keen beginner.

Right, problem: I'm on a ten day 'complexity summer school'. We've just started
collective projects for the rest of the week.

My proposed project collected enough skilled people to be viable. So - 

My hypothesis: in a world consisting of firms, workers and consumers it is
possible for the worker-consumer agents to segregate into separate groups, as
their interests diverge. 

Explanation:

There are two agents: firms and people. The people have both worker and consumer
behaviours: they sell their labour to the highest bidder and buy products at
the lowest price they can. 

Conversely, firms want to buy labour from workers as cheaply as possible. They
produce one type of product - all firms make the same thing, and compete only
over price. They want to sell their product high.

So - firms sell a product; the money from this pays the workers - whose wages
the firms negotiate a market price on; the workers buy a product, the price of
which is also negotiated, which goes back into the firms... There's the detail
lacking, of course (e.g. do we include production costs?) but that's the gist
of it.

Clearly firms' and workers' interests are opposed. Firms' and consumers'
interests are also opposed. (It could be argued that they share an interest in
e.g. maintaining a work-place, but I'm defining interest in very narrow
financial self-interest terms at each transaction, for the benefit of modelling
the problem.)

But there are interest alignments.

Less interesting is where consumers and workers are part of the same community:
their interests are connected, but not in a way that's directly clear to me.
While they want products to be cheap, if they get their wages from the money
network fed by what they buy...? Is there a stable state or equilibrium
solution?

Here's the hypothesis I'm interested in, though: it's possible for consumers'
and workers' interests to become opposed, where groups can segregate: one set
of consumers may 'want' another group of workers to remain on low wages, if the
money that group earns does not affect the amount of money in their network. 

These consumers' interests become aligned with the firms that employ the cheap
labour - though perhaps not in the narrow sense I just defined.

(Perhaps evidently, the question is motivated by the possibility that
globalisation might lead / may have led to a steady state where rich first
world consumers benefit from Export Processing Zone workers, and those workers
may be stuck there.)

A few obvious initial observations and problems:

One can imagine two poles: 

1. A homogeneous network, where each worker-consumer agent is evenly affected by
the flow of capital,and no segregation occurs
2. A network consisting of two or more groups, where one set of poorly paid
workers produces cheap products for another set of well-paid workers.

But any answer will be more subtle than this, having to do with the exact flow
of money in the network. So how might we go about measuring this? Is there a
way to come up with an indicator for segregation?

Also: what would happen to the low-paid workers? What would they buy? Do they
save up and buy when they can? Not very elegant. Perhaps they might create
dependencies with their own group of local firms.

I've been trying as much as possible to avoid arbitrary agent rules - along the
lines of 'buy only pink things. Why? Coz I'm God and I've written it into your
code.' I'd say a rule that sets a firm's profit level at x comes into this
category - but I guess we have to try various things.

Another problem - the key one - is how market price is decided. Where an
economist can get away with using a demand curve, you can't do that in an
agent-based model. In fact, perhaps the point is not to - to try and induce
supply and demand through interaction?

Currently, I think, buying and selling also needs directionality. Which is to
say, the firm has to offer a wage price, and raise it incrementally, to find
the market price - waiting for an agent's worker-behaviour to say 'yes', or the
workers have to start at some high price, and do the reverse - waiting for the
firm to decide to take them on.

So - the key thing seems to be how market price is set, and this is the thing
that's really foxing me.

We may try and implement the Walrasian Auction method - just to compare to other
methods. Does anyone have any good non-code-language specific reference for
this? (We have c++ and Matlab programmers in the group.)

What other approaches can we use? What rules can be given to the agents that
will produce anything looking like supply and demand, or adapting price in
another way? Do we need some sort of epidemiological network for information to
flow through?

Finally: maybe I'm projecting my notion that segregation might occur at all.

Right, sorry for the length. Here's hoping someone finds this interesting...!

.. and I look forward to our exchanges in the future.

All the best,

Dan

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