Growth versus Equality in Agent-Based Macro Models

Is a fair degree of equality among economic agents with respect to income and wealth compatible with an optimal level of economic growth - or does initiatives promoting equality restrain growth, or in the opposite, does initiatives promoting growth restrain equality? These are questions that have engaged economists of both theoretical and empirical orientation, and, it is argued here, questions that should also engage agent-based simulators. Whereas recent growth theories are less fit for studying questions of dispersion between agents, agent-based models are capable of handling dispersional aspect, and thus equality, as well as handling the macrolevel, and thus growth. The question is truly a question for which no well- established answer exists. Theoretical economists have long argued that equality and efficiency are contradictory, but empirical tests have shown a positive correlation between growth and equality (eg. Alesina and Rodrik (1994) and Persson and Tabellini (1994)). A recent agent-based computational study (Bruun and Luna (2000)) show both answers to be true for a virtual economy. Whereas GDP and the Gini coefficient for wealth distribution has a positive correlation throughout the business cycles generated by the model, the long run correlation is negative. The purpose of this paper is to study this result more carefully and investigate the robustness of the result. The Bruun/Luna model was not designed specifically for the study of equality but got the contradictory correlation in the long and short run respectively, as a by-product in a model focusing on growth as a result of learning processes in the supply side of the economy. As is the case in real world economies, causalities in agent-based models are not always transparent, and it takes both statistical testing of model output and experiments within the model before conclusions can be drawn. Besides this work, we shall look for similar results in other agent-based macro models (eg. Bruun(1999)). A. Alesina and D. Rodrik (1994)"Distributive Politics and Economic Growth",bQuarterly Journal of Economics, 109, pp. 465-490. C.Bruun(1999)"Agent-Based Keynesian Economicd: Simulating a Monetary Production System Bottom-Up", working paper, Department of Economics, Politics and Public Administration, Aalborg University, Denmark. C.Bruun and F.Luna(2000), "Endogenous Growth in a Swarm Economy - Fighting Time, Space and Complexity" in "Economic Simulations in Swarm: Agent-Based Modelling and Object Oriented Programming" ed. B y F.Luna and B.Stafansson, Kluwer 2000. T. Persson and G. Tabellini (1994) "Is Inequality Harmful for Growth?", American Economic Review, 84, pp. 600-621.