Agent (economics)

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In economics, an agent is an actor in a model that (generally) solves an optimization problem. In this sense, it is equivalent to the term player, which is also used in economics, but is more common in game theory.

For example, buyers and sellers are two commonly-encountered types of agents in partial equilibrium models of a single market. Macroeconomic models, especially dynamic stochastic general equilibrium models that are explicitly based on microfoundations, often distinguish households, firms, and governments or central banks as the main types of agents in the economy. Each of these agents may play multiple roles in the economy; households, for example, might act as consumers, as workers, and as voters in the model. Some macroeconomic models distinguish even more types of agents, such as workers and shoppers^[1] or commercial banks.^[2]

The term 'agent' is also commonly used in relation to principal-agent models; in this case it refers specifically to the agent who acts on behalf of a principal.^[3]

In Agent-Based Computational Economics, the concept of an agent has been more broadly interpreted to be any persistent individual, social, biological, or physical entity interacting with other such entities within the context of a dynamic multi-agent economic system.

[edit] Representative vs. heterogenous agents

An economic model in which all agents of a given type (such as all consumers, or all firms) are assumed to be exactly identical is called a representative agent model. A model which recognizes differences among agents is called a heterogeneous agent model. Economists often use representative agent models when they want to describe the economy in the simplest terms possible. In contrast, they may be obliged to use heterogeneous agent models when differences among agents are directly relevant for the question at hand.^[4] For example, considering heterogeneity in age is likely to be necessary in a model used to study the economic effects of pensions; considering heterogeneity in wealth is likely to be necessary in a model used to study precautionary saving^[5] or redistributive taxation.^[6]

[edit] See also

• Homo economicus
• Rational agent
• Representative agent
• Agency (law)

[edit] References

1. ^ Robert Lucas, Jr.,(1980), 'Equilibrium in a pure currency economy'. Economic Inquiry 18 (2), pp. 203-20.
2. ^ Timothy S. Fuerst (1992), 'Liquidity, loanable funds, and real activity'. Journal of Monetary Economics 29 (1), pp. 3-24.
3. ^ Joseph E. Stiglitz (1987). "Principal and agent", The New Palgrave: A Dictionary of Economics, v. 3, pp. 966-71.
4. ^ José-Víctor Ríos-Rull (1995): 'Models with heterogeneous agents'. Chapter 4 in T. Cooley (ed.) Frontiers of Business Cycle Theory, Princeton University Press, ISBN 069104323X.
5. ^ Christopher Carroll (1997), 'Buffer-stock saving and the Life Cycle/Permanent Income Hypothesis'. Quarterly Journal of Economics 112 (1), pp. 1-56.
6. ^ Roland Benabou (2002), 'Tax and education policy in a heterogeneous-agent economy: What levels of redistribution maximize growth and efficiency?' Econometrica 70(2), pp. 481-517.