In this paper, we applied artificial life techniques to an outstanding problem in economics. Critically, we have defined and implemented a firm agent that exhibits monopoly and competitive behavior under appropriate conditions. The development of this firm agent, an agent which relies only on local information to make pricing decisions, is the primary contribution of this work.
Our simulation provides an upper bound on the complexity of an agent required to generate the qualitative features of a transition economy. These features include a U-shaped output curve, an increasing share of the private sector in production and efficiency gains in resource allocation. These results give a proof-by-example that an approach to economics that draws on ideas from the field of artificial life may succeed in providing important insights into economic phenomena.
As the next step in developing this approach, we plan to fully model consumer agents who choose consumption and leisure. This will endogenize consumption and labor decisions thus enabling us to address labor market issues. We also plan to calibrate our simulation to a real-world transition economy, such as Poland or Hungary.