Self-Organization of Trade Networks in an Economy with Imperfect Infrastructure

Sergei Guriev, Igor Pospelov and Margarita Shakhova ()
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Margarita Shakhova: Computing Center, Russian Academy of Science

Computing in Economics and Finance 1996 from Society for Computational Economics

Abstract: A multi-agent model is proposed for the analysis of self- organization of trade networks. The model takes into account time spent on transactions (`` trade distance). It is shown that the same set of traders may generate trade networks of different structures depending on average trade distance. When the latter is small, the market is near-competitive, trade structures are flat. When trade distance is large, the set of traders exhibit monopolistic behavior, traders sell only to rich consumers, trades are rather large. Under medium trade distance a phase transition and complex dynamics are observed, including significant price oscillations, regular bursts of shortages and long chains of traders. Emergence of trader market strategies such as stabilizing wholesale traders and destabilizing speculators is discovered. The model is studied both analytically and via computer simulations.

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