Can Endogenous Participation Explain Price Volatility? Evidence from an Agent-Based Cobweb Model
- 90 Downloads
This work provides a computational cobweb model with heterogeneous adaptive producers with endogenous market entry and exit. Firms face a borrowing constraint and so can go bankrupt. At the same time when average profits are positive there is an inflow of new firms in the market. Bounded dynamics and endogenous volatility are shown to follow without resorting to nonlinearities.
KeywordsHeterogeneous agents Expectations Price instability Market entry and exit
- Gouel, C. (2010). Agricultural price instability: A survey of competing explanations and remedies. Journal of Economic Surveys. doi:10.1111/j.1467-6419.2010.00634.
- Hommes, C. H., Sonnemans, J., & van de Velden, H. (2000). Expectations formation in a cobweb economy: Some one person experiments. In D. Delli Gatti, M. Gallegati, & A. Kirman (Eds.), Interaction and market structure. Lecture notes in economics and mathematical systems (Vol. 484, pp. 253–266). Springer-Verlag.Google Scholar