Economic systems are distributed in the sense that economic agents make decisions without any central control. Prices, quantities, wealth, and market structure emerge from the interaction of agents acting in their own self interest. The concepts and language of systems science are used to define economic systems in a manner that captures and articulates the distributed nature of economic systems. Further, the systems definition permits multiple views of the economic system, and in addition, allows the agents to "step outside" the system in order to study it. Economic systems are defined in such a way that it is feasible to construct artificial economic systems, and in particular, ones that are composed of self-interested agents that operate according to principles that are prescribed by the researcher. An artificial economic system was actually constructed and tested in a computer environment. The model was verified with reference to several theoretical models such as static and adaptive expectations. The system constructed allows up to 1000 agents to interact without any central control. A computer "blackboard system" is used as the architecture for providing common information to the agents in the artificial economic system. The blackboard design successfully allows complex agents to compete and trade in an artificial economic system created by the researcher. Prices, quantities, wealth, and market structure emerge naturally in the artificial economy that depend on the characteristics and prescribed strategies of the agents in the system. After a transition period, the trading frequently produces price and quantity time series that have the characteristics of a random walk, a condition that is well known in real world markets. Three classes of producer agents were used in these artificial economic systems: optimizing agents that incorporate neural networks, satisficing agents that incorporate very simple rule-based approaches, and Stackelberg agents that have knowledge about the consumers in the system, but do not have knowledge about their competitor's strategies or intentions. Neural networks are used to model the behavior and strategies of economic agents that can be said to learn, i.e., those agents that develop general principles for adapting to changing market conditions that transfer across markets. The focus of this research was on the producers in the system. The consumption side of the economic system was represented by a set of simple consumers. An important result emerging from this research is that at least one agent out of four in these experiments with accurate knowledge about market demand increases the wealth of the system as a whole. Markets containing a single Stackelberg or neural agent produced far more wealth than markets composed only of satisficing agents. However, the agents with knowledge do not necessarily capture the highest share of the wealth. The success of individual agents depends on the agent's trading strategy, as expected, and in addition depends on the combination of agents in the system. Certain strategies appeared to be flexible while others were brittle, and were easily foiled by changing the agents in the market, or by changing the market conditions. Earlier studies attempted to use neural networks to simulate an entire economic system, but were rejected because the organizing principles of the two systems are not analogous. Additionally, neural networks were successfully tested for solving various economics problems that were not related to the simulation of economic systems. Neural networks were found to effectively solve problems with missing and redundant data that are not directly solvable with well known methods such as least squares.

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This dissertation comprises three essays under the title "Three Essays on Trade, Resource and Environment". / The first essay develops a model of international duopoly involving competition both in prices and in levels of environmental friendliness, and studies the implications of government policies. It is shown that, contrary to the conventional wisdom, a regulatory increase in the minimum required level of environmental friendliness of the imported goods may harm the home firm, and may result in an increase in the volume of imports. It may also have adverse effects on the environment. Whether consumers lose or gain from such a regulatory increase depends on consumption spillover effects. We also show that, under certain conditions, the duopoly's equilibrium choice of levels of environmental friendliness is socially optimal. / The second essay investigates the properties of the dynamics of population and resource in a model where the objective function is to maximize the utility level of the least advantaged generation. Unlike in models with a utilitarian objective where the typical outcome is a unique steady state, it is found in our model that there is a continuum of steady states. Which steady state will be approached depends on the initial conditions. We show that for relatively large values of the resource stock, each steady state is conditionally stable in the saddlepoint sense; but for small values of the resource stock, the approach path to a steady state is non-monotone in the state space. Along the approach path to a steady state, the implicit discount rate varies over time. / The third essay extends the existing literature on regulation of polluting firms by taking into account the dynamics of investment in pollution abatement capital. It confirms that, under perfect competition, a Pigouvian tax can create the correct incentive for firms to invest and guide firms to achieve the social optimum. This tax path is time consistent. However, when there is a large polluter with price taking behavior, while an efficient and time consistent tax path exists, it is no longer subgame perfect unless the damage cost function is linear in emission. A non-linear taxation rule needs to be designed to achieve the socially optimal outcome. In the case of monopoly, a pair of instruments, an emission tax and a production subsidy, can lead the monopolist to achieve the social optimum. However, if pre-commitment is not possible, it is shown that linear feedback rules cannot achieve the first best outcome.

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Graduation date: 1982

A linear model to determine the optimal policy for investment in social infrastructure is formulated and its solution is obtained using the Maximum Principle. The unique solution is characterized by a-bang-bang control, with only one interval of investment in social capital, and the endpoints of this interval can be numerically determined, given values for the parameters of the model. A generalization of the model which allows instantaneous jumps in the level of social capital is also analyzed, and the solution to the modified problem is shown to be a uniquely determined impulse control. The final extension of the model allows us to determine an upper bound for the optimal time horizon. / Science, Faculty of / Mathematics, Department of / Graduate

The purpose of this research is to develop and test a model of the demand for money within a general optimising model of household behaviour. The framework adopted is the direct utility approach. The services of money and money substitutes, along with the services of consumption goods (durable and non durable) and leisure are assumed to enter as arguments in the representative household's utility function. The theoretical part of the thesis consists of applying the tools of modern utility theory to the particular problem of the demand for money. The development and solution of the model provides a clear basis for interpreting the demand equations used in estimation, and also makes explicit various assumptions implicit in previous empirical models in this area. In particular, derivation of the rental price of money and money substitutes serves to clarify the role of expectations and the relationship between the rental prices of money and goods within the direct utility model. The major part of the thesis consists of applying the model to annual Canadian data for the period 1947-1974. A substantial portion of the empirical contribution is the construction of data series consistent with the theoretical framework of the model. We differ from other researchers in this area in using the ARIMA model to take expected capital gains into account when constructing rental price series for durable goods. Three different groups of models are examined empirically. The first group contains only consumption goods and leisure. The second group includes aggregate 'money' and aggregate 'near money' along with consumption goods and leisure, while the third group contains only 'liquid assets', i.e., disaggregated components of 'money' and 'near money.' The demand equations for each model are derived from a Gorman polar form representation of the indirect utility function, and are evaluated using a constrained estimation technique. The presence of autocorrelation is explored, and the model tested for parametric stability over time. Tests of the restrictions implied by the theory of utility maximising behaviour and of homotheticity are performed. The estimated models were found generally to be consistent with the underlying theory, and also provided some useful information. Money has an expenditure elasticity less than one, while near money is a luxury good. There is no evidence of substitutability between aggregate money and aggregate near money; however, some substitutability is reported between chartered bank personal savings deposits, and trust and loan company savings deposits. / Arts, Faculty of / Vancouver School of Economics / Graduate

There have been several recent advances in the theory of choice under uncertainty that have extended the restrictive mean-variance framework. Working within the context of a model of expected utility maximization, Rothschild and Stiglitz (1970) and Diamond and Stiglitz (1974) present intuitively appealing and theoretically sound definitions of "greater risk or uncertainty". Moreover, they show that their definitions are useful as well as consistent, in that they may be used to derive comparative statics results in which economists are interested. In the first part of the thesis we argue that the above analyses and most related ones are restricted to models where both the decision variable and the exogenous random variable that defines the stochastic environment, are scalars. Then we extend many of the definitions and results to the context of a general multivariate decision problem. In particular, a generalized notion of risk independence is shown to be relevant to behaviour under uncertainty. This general analysis is then applied to two specific decision problems: first, the standard two-period consumer choice problem where current consumption must be decided upon subject to uncertainty about future income and prices; and second, the corresponding problem in the theory of the firm, where a competitive firm must make some production decisions subject to uncertainty about the prices that will prevail for some products and factors of production. We extend earlier studies of these problems by considering disaggregated models, by adopting theoretically consistent definitions of increased uncertainty and by investigating the role of production flexibility in determining firm behaviour under uncertainty. In both the consumer and producer models the crucial properties of preferences and technology are pointed out and flexible functional forms are hypothesized that are amenable to empirical estimation. The theory of duality plays an important part throughout the formulation and analysis of both models. Finally the basic theory of producer behaviour analysed above is applied to aggregate U.S. manufacturing data for the 1947-71 period. We assume that the capital stock decision must be made one period before the capital comes into operation, subject to expectations about uncertain future prices, while all other factors and outputs may be adjusted fully to current prices. An added important ingredient of the model is the distinction between the capital stock and utilization (depreciation) decisions, the latter being made in each period after that period's prices are known. The consistency of the model with the data is investigated and the empirical significance of our formulation of the capital utilization decision is tested. / Arts, Faculty of / Vancouver School of Economics / Graduate

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published_or_final_version / Economics / Master / Master of Social Sciences