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Area of Science:

  • Environmental Economics
  • Agent-Based Modeling
  • Economic Dynamics

Background:

  • Traditional economic models often treat the environment as a homogeneous good.
  • This overlooks the local nature of environmental quality and its impact on agents.
  • Externalities link local environments to global economic choices.

Purpose of the Study:

  • To relax the homogeneous environment assumption in economic-environmental models.
  • To analyze the dynamic relationship between local environmental quality and economic processes.
  • To propose an agent-based model incorporating local environmental perception and network externalities.

Main Methods:

  • Adaptation of the John and Pecchenino (1994) framework.
  • Development of an overlapping generations (OLG) agent-based model.
  • Inclusion of Moore neighborhood interactions to define network externalities.

Main Results:

  • Local environmental quality is influenced by individual and neighborhood decisions.
  • Network externalities can induce cyclical dynamics in environmental quality.
  • Heterogeneity in individual preferences can mitigate these oscillations.
  • Centralized planning leads to stable, stationary dynamics irrespective of agent heterogeneity.

Conclusions:

  • Environmental quality possesses a local character, influenced by interconnected agents.
  • Agent-based models are valuable for understanding complex economic-environmental interactions.
  • Network externalities and agent heterogeneity significantly shape environmental dynamics, which can be stabilized by centralized planning.