by
Allen Wilhiteabstract
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Most of us do the bulk of our trading close to home, and yet we accumulate goods
and services from around the world. Jus how do local markets allocate global
resources? This paper examine this question by constructing
an artificial market in which autonomous agents trade for goods and then
subjects this economy to a variety of trading rules. Trade requires search,
negotiation, and exchange, which are activities that
absorb resources. In this artificial market agents endowed with a
stock of goods seek out partners, negotiate a price,
and trade with the agent offering the best deal. Different trade
networks are the imposed on the system by restricting the set of individuals with whom
an agent can communicate. Comparing the path to the eventual equilibrium as
well as the equilibrium characteristics of each trade network allows us to see how
each system dealt with the tasks of search, negotiation, and exchange.
Initially, all agents are free to trade with any individual in the global market. In such a world, global resources are optimally allocated with few trades, but only after a tremendous amount of search and negotiation. If trade is restricted within disjoint local boundaries, search is simple but global efficiency elusive. However, a hybrid model in which most agents trade locally but a few agents trade globally results in an economy that quickly reaches a pareto equilibrium with significantly lower search and negotiation costs. Such 'small-world' networks occur in nature and may help explain the ease with which most of us acquire goods from around the world. We also show that there are private incentives for such a system to arise. |