Economic Theory and Computational Economics (ETACE)

Research in the workgroup on Economic Theory and Computational Economics (ETACE) is mainly concerned with the analysis of different aspects of economic dynamics and strategic interaction. It employs and extends both analytical methods, in particular dynamic optimization and dynamic game theory, and computational approaches, where the latter includes numerical methods for the solution of (dynamic) equilibrium models as well as agent-based simulation.

Work at ETACE is based on the conviction that thorough examination of (dynamic) economic phenomena should be based on a combination of

(dynamic) equilibrium analysis, providing benchmark results under full rationality (and foresight) of decision makers,
the explicit consideration of the (potentially complex) economic dynamics unfolding under the interaction of boundedly rational heterogeneous agents,
the incorporation of learning and expectation formation processes of economic decision makers.

The aim of our work is to extend the toolbox of economists and to apply these tools to relevant research questions, mainly in the areas of Industrial Economics, Innovation and Technological Change and Macroeconomic Dynamics.

Ongoing research work at ETACE can be broadly subsumed under the following research topics. Please click on a topic for a short research outline, concrete projects and publications by ETACE members related to this topic.

Agent-based Modelling for Economic Policy Analysis
Economics of Innovation and Industrial Dynamics
Firm Behavior under Financial Constraints

New results of ETACE research are first available in the SSRN Working Paper Series Bielefeld Working Papers in Economic and Management.

Click here for all publications of ETACE members.

 

Agent-based Modelling for Economic Policy Analysis

Herbert Dawid, Philipp Harting, Jasper Hepp, Dirk Kohlweyer, Tomasz Makarewicz and Mariya Mitkova

In recent years it has been widely acknowledged by economic scholars that the explanatory power of standard representative agent models is in many instances limited. This has lead to a surging interest in the empirical exploration of bounded rationality of behavior in economic decision problems, mainly by means of laboratory experiments, and attempts to incorporate heterogeneity in endowments or behavior into economic models. A particularly natural and promising approach to account for economic phenomena that result from the (bounded) rational interaction of heterogeneous economic agents is the use of agent-based computer simulation models. Phenomena of such type are abundant (the avalanche-like dynamics in the network of connected commercial banks inducing the current economic crisis is just one prominent example in that respect), and a large amount of insightful agent-based research has addressed a wide range of relevant economic issues (see e.g. the Handbook of Computational Economics Volume II edited by Tesfatsion and Judd (2006) and Volume IV edited by Hommes and LeBaron (2018) for overviews).

A main research topic at ETACE is the development of micro-founded macroeconomic heterogeneous agent-based models that can be used as a unified framework for policy analysis in different economic policy areas. Based on work carried out in the EU-funded Eurace Project (2006-2009), the Eurace@Unibi Model model has been developed and used as a tool for the analysis of various economic policy questions related to issues of technological change and economic growth, labor market policies, social cohesion and convergence, and to study banking and credit market regulations. The Eurace@Unibi model is among the most sophisticated and well-documented models in this domain of economic research. It has strong empirical microfoundations, reproduces a large set of empirical stylized facts and has been the basis for work in the EU-funded projects ISIGrowth (2016-2018) and GROWINPRO (2019-2022). The Eurace@Unibi model is continually adapted and extended to suitably address concrete research questions.

In addition to work using the Eurace@Unibi model, the ETACE group keeps developing and applying other simulation models for the analysis of important economic issues. These include structural change in light of technological progress and automation, economic and epidemic effects of lock-down policies to contain a pandemic or the role of expectation formation processes. Also, members of ETACE develop and apply statistical methods and concepts (e.g., spline functions) for model calibration as well as systematic and rigorous analysis of policy experiments using agent-based simulation models.

Publications by ETACE members in this Research Area:

 

Economics of Innovation and Industrial Dynamics

Herbert Dawid, Philipp Harting, Andreas Pietryga, Xingang Wen

Innovation is one of the main drivers of economic development in general and of industrial change in particular. Starting with seminal work by Arrow (1962) a large body of literature in economics has analyzed empirically and theoretically the innovation incentives of firms in different economic environments as well effects of innovations on market- and industry-dynamics.

Research at ETACE contributes to this rich literature in the framework of oligopolistic markets with a particular focus on the dynamic analysis of feedbacks between (innovation) incentives of firms and changes in industrial structure. Changes in industrial structure here refers to the emergence of new submarkets through product innovation, the generation of new firms or the change in legal environments. We also study the interplay between firms’ innovation performance and their standing in the financial market. Methods from (dynamic) game theory as well as from agent-based computational economics are used to address these issues.

Recently a particular focus of our work has been on innovation incentives and market dynamics in markets with rising importance of smart products, such as autonomous vehicles.

Publications by ETACE members in this Research Area:

 

Firm Behavior under Financial Constraints

Under construction