ThymineC wrote:If the LT universe is represented at the macroeconomic level, it raises some additional questions for me. Will there be any kind of monetary policy committee (e.g. such as the UK's Bank of England) that controls things like interest rates or employ measures like quantitative easing? These kind of things could lead to changes in the pattern of expenditures of NPC's or the quality of the economy on planets. They could also lead to multiplier effects, since an increase in aggregate demand would feed back into the circular flow of income and increase national income and expenditure by a greater proportion, producing further changes in the behaviour of NPC's and of planets (if their economies are modelled).
Since Limit Theory universes are essentially infinite, simulated economic models (that adhere to the idea of limited information and connectivity between economic entities) are by definition not possible on a universal scale.
As for money, for simplicity's sake, Josh decided to go with a universal currency. It is not a fiat currency, however. Universal monetary units are backed by a tangible asset(s). The idea of using a specie was raised but discarded due to the improbability of its universal acceptance and set value. I suggested utilizing currency issued by barter exchanges (with the available currency on a given exchange directly correlated to the goods and services offered on it). Alas, depending on just how laissez-faire the barter exchange simulation would be, wealthy players would be able to corner and manipulate markets, potentially in a game-breaking way, though this is likely true with most potential currency/market models.
The focus, as I see it, should be on creating a sound microeconomic simulation. The key to that, in turn, is properly determining elasticity, especially as it concerns substitution and its effect on demand (see cross elasticity of demand). Creating a sound formula for the elasticity of supply is less pressing as it ties into aspects of the game which will get plenty of attention as is (raw materials, production, inventory, etc...).
As concerns macroeconomic modeling one could correlate based on variables such as output, employment, consumption, investment, etc... aggregated from the microeconomic simulations into some sort of coherent equilibrium state. Given the breadth of the game it is my sense that it might make more sense to work backwards and employ dynamic stochastic general equilibrium modeling.
Like other general equilibrium models, DSGE models aim to describe the behavior of the economy as a whole by analyzing the interaction of many microeconomic decisions. The decisions considered in most DSGE models correspond to some of the main quantities studied in macroeconomics, such as consumption, saving, investment, and labor supply and labor demand. The decision-makers in the model, often called 'agents', may include households, business firms, and possibly others, such as governments or central banks.
Furthermore, as their name indicates, DSGE models are dynamic, studying how the economy evolves over time. They are also stochastic, taking into account the fact that the economy is affected by random shocks such as technological change, fluctuations in the price of oil, or changes in macroeconomic policy-making. This contrasts with the static models studied in Walrasian general equilibrium theory, applied general equilibrium models and some computable general equilibrium models.
For a coherent description of the macroeconomy, DSGE models must spell out the following economic 'ingredients'.
Preferences: the objectives of the agents in the economy must be specified. For example, households might be assumed to maximize a utility function over consumption and labor effort. Firms might be assumed to maximize profits.
Technology: the productive capacity of the agents in the economy must be specified. For example, firms might be assumed to have a production function, specifying the amount of goods produced, depending on the amount of labor, capital and other inputs they employ. Technological constraints on agents' decisions might also include costs of adjusting their capital stocks, their employment relations, or the prices of their products.
Institutional framework: the institutional constraints governing economic interactions must be specified. In many DSGE models, this might just mean that agents must obey some exogenously imposed budget constraints, and that prices are assumed to adjust until markets clear. It might also mean specifying the rules of monetary and fiscal policy, or even how policy rules and budget constraints change depending on a political process.
Traditional macroeconometric forecasting models used by central banks in the 1970s, and even today, estimated the dynamic correlations between prices and quantities in different sectors of the economy, and often included thousands of variables. Since DSGE models start from microeconomic principles of constrained decision-making, instead of just taking as given observed correlations, they are technically more difficult to solve and analyze. Therefore they usually abstract from so many sectoral details, and include far fewer variables: just a few variables in theoretical DSGE papers, or on the order of a hundred variables in the experimental DSGE forecasting models now being constructed by central banks. What DSGE models give up in sectoral detail, they attempt to make up in logical consistency.
At any rate, I have already created an economics discussion thread
some time ago, even if I have more or less abandoned it due to personal distractions as well as a dearth of new development information relating to economic simulation/modeling in the project.
I know not what life is, nor death.
Year in year out-all but a dream.
Both Heaven and Hell are left behind;
I stand in the moonlit dawn,
Free from clouds of attachment.