New Economics Papers
on Computational Economics
Issue of 2006‒05‒20
three papers chosen by

  1. Empirical Validation of Agent Based Models: A Critical Survey By Giorgio Fagiolo; Paul Windrum; Alessio Moneta
  2. Inequality Constraints in Recursive Economies By Pontus Rendahl
  3. The Allocative effectiveness of Market Protocols Under Intelligent Trading By Marco LiCalzi; Paolo Pellizzari

  1. By: Giorgio Fagiolo; Paul Windrum; Alessio Moneta
    Abstract: This paper addresses the problem of finding the appropriate method for conducting empirical validation in agent-based (AB) models, which is often regarded as the Achilles’ heel of the AB approach to economic modelling. The paper has two objectives. First, to identify key issues facing AB economists engaged in empirical validation. Second, to critically appraise the extent to which alternative approaches deal with these issues. We identify a first set of issues that are common to both AB and neoclassical modellers and a second set of issues which are specific to AB modellers. This second set of issues is captured in a novel taxonomy, which takes into consideration the nature of the object under study, the goal of the analysis, the nature of the modelling assumptions, and the methodology of the analysis. Having identified the nature and causes of heterogeneity in empirical validation, we examine three important approaches to validation that have been developed in AB economics: indirect calibration, the Werker-Brenner approach, and the history-friendly approach. We also discuss a set of open questions within empirical validation. These include the trade-off between empirical support and tractability of findings, the issue of over-parameterisation, unconditional objects, counterfactuals, and the non-neutrality of data.
    Keywords: Empirical validation, agent-based models, calibration, history-friendly modelling
    Date: 2006–05–15
  2. By: Pontus Rendahl
    Abstract: Dynamic models with inequality constraints pose a challenging problem for two major reasons: Dynamic Programming techniques often necessitate a non established differentiability of the value function, while Euler equation based techniques have problematic or unknown convergence properties. This paper aims to resolve these two concerns: An "envelope theorem" is presented that establishes the differentiability of any element in the convergent sequence of approximate value functions when inequality constraints may bind. As a corollary, convergence of an iterative procedure on the Euler equation, usually referred to as time iteration, is ascertained. This procedure turns out to be very convenient from a computational perspective; dynamic economic problems with inequality constraints can be solved reliably and extremely efficiently by exploiting the theoretical insights provided by the paper.
    Keywords: Inequality constraints; Envelope theorem; Recursive methods; Time iteration
    JEL: C61 C63 C68
    Date: 2006
  3. By: Marco LiCalzi; Paolo Pellizzari (Department of Applied Mathematics, University of Venice)
    Abstract: We study the performance of four market protocols that lead to allocative efficiency: batch auction, continuous double auction, specialist dealership, and a hybrid of these last two. In a former study, we compared them with respect to several additional performance criteria under the assumption of zero intelligence. This paper analyzes three performance criteria under different ways to remove the assumption of zero intelligence. The following conclusions are robust. The number of wasteful transaction is minimized by the batch auction and the dealership. Moreover, the former minimizes price dispersion and the latter minimizes time to convergence.
    Keywords: evaluation of market protocols, market design, microstructure, agent-based methodologies
    JEL: D61 G19 D44 C63
    Date: 2006–05

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