ACE Research Area:
Economic Policy Analysis

Last Updated: 6 January 2016

Site Maintained By:
Leigh Tesfatsion
Department of Economics
Iowa State University
Ames, Iowa 50011-1070
  tesfatsi AT

ACE Website
Macroeconomic Coordination (Course Module)
Agent-Based Macroeconomics
Online ACE Course (Self-Study eBook)

The original version of this webpage was created by
Giorgio Fagiolo
Sant'Anna School of Adv Studies, Pisa, Italy
Michele Fortezza

Sant'Anna School of Adv Studies, Pisa, Italy
Iacopo Morchio

Sant'Anna School of Adv Studies, Pisa, Italy
Andrea Roventini
University of Verona, Italy

Table of Contents:

Introductory Materials

Use of ABMs for Microeconomic Policy

Neoclassical models of microeconomic behavior tend to consider only the average behaviour of agents as the key variable for the analysis of policy effects. Agent-based microeconomic models address policy issues through the adoption of a more flexible perspective regarding the hypotheses and assumptions of the model and the goals of policy evaluation. Assumptions may concern individual behavior and interactions,  and their heterogeneity across agents, i.e. distributions of parameters that associated to agents' behavioral rules and endowments.
In ABMs, policies can be studied from many different points of view: one can be interested in the effect of market structure on the outcome of the policy, or viceversa; policies could be also studied in terms of rules and efficient market design; finally, ABMs can be used in order to better understand the effect of interaction structures and institutions on policy outcomes.

In what follows, we survey a number of papers studying ABMs that address microeconomic policy issues using ABMs that describe a society, an industry, or a market from a micro perspective (without any attempt to derive general disequilibrium implications). The list is not meant to be exhaustive. Please suggest ay additional paper related to microeconomic policy using ABMs.

Use of ABMs for Macroeconomic Policy

Standard macroeconomic models do not take into account various important mechanisms and empirical evidences of economic systems, such as the irregular distribution of some variables and the fragility of credit and financial markets. Also, these models simplify aggregation of variables and aggregate behaviour to the extreme, assuming that a single representative agent can be considered as a good approximation of the economy as a whole.

Macroeconomic ABMs try to give an explicit microfoundation to the observed behavior of modern economies, taking into account heterogeneity of agents, micro-macro dynamics and path dependency. These models are able to explain a wide range of observed statistical regularities, as well as to reproduce the observed behaviour of some particular macro-dynamics.
Such models are also suitable as a laboratory for policy experiments; the main fields of research concern the role of public policies on growth, the stimulation of demand through multiplier/accelerator mechanisms, the regulation of financial markets.

In what follows, we survey a number of papers studying ABMs that address macroeconomic policy issues, i.e. ABMs that describe a set of industries or markets from a macro perspective. The list is not meant to be exhaustive. Please suggest any additional paper related to macroeconomic policy using ABMs.

A Taxonomy

In the following table we try to summarize the state of the art related to ABMs addressing economic-policy issues.

The taxonomy is organized across two dimensions. Rows classify papers according to whether they principally address issues related to micro, meso or macro economic policies. Meso papers mosty relate to setups or policy issues concerning industries and in general partial-disequilibrium analyses. Columns report a brief list of specific policy-related issues addressed in these papers and classify the papers accordng to the degree at which empirical validation (of some kind) is pursued in the analysis.

We distinguish between: (i) no validation, if no (or very mild) attempts at taking the model to the date is pursued; (ii) input validation, if there is an attempt of building the model on assumptions about individual behaviors and interactions that are sustained by some empirical or experimental fact (but no clear attempt is made to validate the outputs of the model); (iii) output validation, if the outputs of the models are taken to the data to assess their validity, but no input validation is performed; (iv) Input/Output Validation, if both are performed.

Policy Questions No Validation Input Validation Output Validation Input/Output Validation
Micro Is a society formed by selfish individuals capable of constructing an efficient network? (Carayol,Roux,Yildizoglu)

Is there a unique optimal tax rate for lottery markets? (Chen,Chie)

What is the effect of different market structures and rules on auctions? (Duffy,Unver)

Do policies and structure of agricultural sector interact? Is structure capable of influencing the outcome of policies? Are policies able to change the structure of such sector over time? (Happe,Balmann,Kellermann,Sahrbacher)

Is the regulation of US power market efficient? How can oppostunistic behaviour of suppliers be prevented? (Sun,Tesfatsion)

What is the effect of public policies on vertically related industries characterized by rapid technological innovation? (Malerba,2008)

How effective are public policies in industries characterized by dynamic increasing returns? How do they affect industry structure over the course of industry evolution? (Malerba,2001)

Why does market power emerge in vertically integrated energy markets? (Ruperez-Micola,Banal-Estanol,Bunn)

Carayol, N., P. Roux and M. Yildizoglu (2008) - "Inefficiencies in a Model of Spatial Networks Formation with Positive Externalities"

Wilhite, A. and W. Allen (2008) - "Crime, Protection, and Incarceration"

Mannaro, K., M. Marchesi and A. Setzu (2008), "Using an Artificial Financial Market for Assessing the Impact of Tobin-like Transaction Taxes"

Happe, K., A. Balmann, K. Kellermann and C. Sahrbacher (2008) - "Does Structure Matter? The Impact of Switching the Agricultural Policy Regime on Farm Structures"

Sun, J. and L. Tesfatsion (2007) - "Dynamic Testing of Wholesale Power Market Designs: An Open-Source Agent-Based Framework"

Ruperez-Micola, A., A. Banal-Estanol and D. Bunn (2008), "Incentives and Coordination in Vertically Related Energy Markets"

Malerba, F., R. Nelson, L. Orsenigo and S. Winter (2008), "Public Policies and Changing Boundaries of Firms in a History-Friendly Model of the Co-evolution of the Computer and Semiconductor Industries"

Malerba F., R. Nelson, L. Orsenigo and S. Winter (2001), "Competition and industrial policies in a ‘history friendly’ model of the evolution of the computer industry"

John Duffy, M.Utku Unver - "Internet auctions with artificial adaptive agents: A study on market design" Chen, S.H. and B.T. Chie (2008) - "Lottery Markets Design, Micro Structure and Macro Behavior: An ACE Approach"
Macro Is fiscal policy able to increase economic performance and dampen economic cycles? (Russo,Catalano,Gallegati,Gaffeo,Napoletano) (Dosi,Fagiolo,Roventini[1]) (Dosi,Fagiolo,Roventini[2])

How do product differentiation, organizational structures, inequality and growth interact? (Ciarli,Lorentz,Savona,Valente)

Public expense should be geographically focused or spread equally between regions? (Dawid,Gemkow,Harting,Kabus,Neugart)

Is discretionary monetary policy better than full commitment to a fixed monetary rule? (Delli Gatti,Gaffeo,Gallegati)

When labor markets are local, is a monetary area able to reach economic homogeneity between regions? (Deissenberg,Van Der Hoog,Dawid)

What are the main transmission mechanisms of monetary policy? How does monetary policy affect economic outcome? (Oeffner)

Are active labor market policies efficient in order to reduce unemployment? (Neugart)

What are the effects of institutional, technological and behavioral factors on the final performance of the labor market? (Fagiolo,Dosi,Gabriele)

How effective are regulatory policies for financial markets? (Westerhoff,Dieci[1]) (Westerhoff,Dieci[2]) (Mannaro,Marchesi,Setzu)

Ciarli, T., A. Lorentz, M. Savona and M. Valente (2008), "Structural Change of Production and Consumption: A Micro to Macro Approach to Economic Growth and Income Distribution"

Dawid, H., S. Gemkow, P. Harting, K. Kabus and K. Neugart, M.and Wersching (2008), "Skills, Innovation, and Growth: An Agent-Based Policy Analysis"

Deissenberg, C., S. van der Hoog and H. Dawid (2008) - "EURACE: A Massively Parallel Agent-based Model of the European Economy"

D. Delli Gatti, E. Gaffeo, M. Gallegati (2005) - "The apprentice wizard: monetary policy, complexity and learning"

Neugart, M. (2008), "Labor Market Policy Evaluation with ACE", Special Issue on "Agent-Based Models for Economic Policy Design"

Westerhoff, F. (2008) - "The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies"

Russo, A., M. Catalano, M. Gallegati, E. Gaffeo and M. Napoletano (2007), "Industrial Dynamics, Fiscal Policy and R&D: Evidence from a Computational Experiment"

Oeffner, Marc (2009), "An Evolutionary Model embedded in an Agent-Based Computer Simulation"

Fagiolo, G., G. Dosi and R. Gabriele (2004), "Matching, Bargaining, and Wage Setting in an Evolutionary Model of Labor Market and Output Dynamics"
Dosi, G., G. Fagiolo and A. Roventini (2006) - "An Evolutionary Model of Endogenous Business Cycles"

Dosi, G., G. Fagiolo and A. Roventini (2008) - "The Microfoundations of Business Cycles: an Evolutionary, Multi-Agent Model"

Dosi, G., G. Fagiolo and A. Roventini - "Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles"

Westerhoff, F., Dieci, R., 2006. "The effectiveness of Keynes' Tobin transaction taxes when heterogeneous agents can trade in different markets: a behavioral finance approach"

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