Impact of Qualitative Characteristics on Market Equilibrium: Simulation with Agent-Based Modeling

Safae Badraoui (), Khalid Bensaid, Ahmed Mouad El Haloui () and Rajae Aboulaich ()
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Safae Badraoui: Research & Development Department, Societe Generale Africa Technologies & Services, Casablanca, Morocco
Khalid Bensaid: Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco
Ahmed Mouad El Haloui: Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco
Rajae Aboulaich: Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2017, vol. 20, issue 02, 1-22

Abstract: This paper involves developing financial utility function that considers compliance to a certain qualitative characteristic and studies the impact on market equilibrium prices, should this criterion be Sharia compliance, fair-trade, environmental, social and governance principles or other ethical aspect. The goal is to show that individual utility can depend on other parameters than wealth and risk aversion, that therefore influence equilibrium market prices. This has been done by examining a possible utility function that takes into account individual sensitivity to the criterion and the intrinsic quality of compliance of this parameter. In order to prove the effectiveness of the proposed utility function, a simulation is made using agent-based approach with NetLogo platform. Upon examination of the impact of these parameters, it becomes clear that compliance to a qualitative characteristic would impact individual utility, supply and demand and result in equilibrium prices. This research highlights the importance of ethical arguments on individual decision making and how markets behave to this.

Keywords: Compliance; ethics; utility; supply and demand; equilibrium price (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219091517500138

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