Local environmental quality and heterogeneity in an OLG agent-based model with spatial externalities

Andrea Caravaggio () and Mauro Sodini ()
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Andrea Caravaggio: University of Foggia
Mauro Sodini: University of Naples Federico II

Journal of Economic Interaction and Coordination, 2022, vol. 17, issue 1, No 14, 287-317

Abstract: Abstract Most of the theoretical contributions on the relationship between economy and environment assume the environment as a good distributed homogeneously among agents. The aim of this work is to relax this hypothesis and to consider that the environment can have a local character even if conditioned through externalities by the choices made at the global level. In this article, we adapt the classical framework introduced in John and Pecchenino (Econ J 104(427):1393–1410, 1994) to analyze the dynamic relationship between environment and economic process, and we propose an OLG agent-based model where each agent perceives her own level of environmental quality determined by her own decisions, and by the decisions of those living around her. Despite the attention devoted to local environmental aspects, network externalities (determined through the scheme of Moore neighborhoods) play a fundamental role in defining environmental dynamics and they may induce the emergence of cyclical dynamics. The occurrence of oscillations in the local environmental quality is partially mitigated by the presence of heterogeneity in individuals’ preferences. Finally, when a centralized planner is introduced, the dynamics converge to stationary values regardless of the assumption on heterogeneity of agents.

Keywords: Agent-based models; Overlapping generations; Local environment; Environmental externalities (search for similar items in EconPapers)
JEL-codes: C63 D62 O13 Q2 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11403-022-00346-9

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