Local environmental quality and heterogeneity in an OLG agent-based model with spatial externalities

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.