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Modelling Price Discovery in an Agent Based Model for Agriculture in Luxembourg

  • Sameer Rege
  • Tomás Navarrete Gutiérrez
  • Antonino Marvuglia
  • Enrico Benetto
  • Didier Stilmant
Conference paper
Part of the Springer Proceedings in Complexity book series (SPCOM)

Abstract

We build an ABM for simulation of incentives for maize to produce bio-fuels in Luxembourg with an aim to conduct life cycle assessment of the additional maize and the consequent displacement of other crops in Luxembourg. This paper focuses on the discovery of market price for crops. On the supply side we have farmers who are willing to sell their produce based on their actual incurred costs and an expected markup over costs. On the demand side, we have buyers or middlemen who are responsible for quoting prices and buying the output based on their expectation of the market price and quantity. We have N buyers who participate in the market over R rounds. Each buyer has a correct expectation of the total number of buyers in each market. Thus in each round, the buyer bids for a quantity \(q_b^r=\frac {Q_b^e}{N \times R}\), where \(Q_b^e\) is the expected total output of a crop. The buyer at each round buys \(\min (q_b^r,S_t^r)\), the minimum of the planned purchase at each round r and the total supply \(S_t^r\) by farmers in the round at a price \(p_b^r\). The market clears over multiple rounds. At each round, the buyers are sorted by descending order of price quotes and the highest bidder gets buying priority. Similarly the farmers are sorted according to the ascending order of quotes. At the end of each round, the clearance prices are visible to all agents and the agents have an option of modifying their bids in the forthcoming rounds. The buyers and sellers may face a shortfall which is the difference between the target sale or purchase in each round and the actual realised sale. The shortfall is then covered by smoothing it over future rounds (1–4). The more aggressive behaviour is to cover the entire shortfall in the next round, while a more calm behaviour leads to smoothing over multiple (4) rounds. We find that there is a statistically distinct distribution of prices and shortfall over smoothing rounds and has an impact on the price discovery.

Keywords

Agent based models (ABM) Agriculture Biofuels Price discovery Life cycle assessment (LCA) Luxembourg 

Notes

Acknowledgements

This work was done under the project MUSA (C12/SR/4011535) funded by the Fonds National de la Recherche (FNR), Luxembourg. We thank Romain Reding and Rocco Lioy from CONVIS (4 Zone Artisanale Et Commerciale, 9085 Ettelbruck, Grand-duchy of Luxembourg) for their valuable insight and for the participation to the discussions for the definition of the project MUSA, and of the data collection survey. We thank professors Shu-Heng Chen, Ye-Rong Du, Ragu Pathy, Selda Kao and an anonymous referee for their valuable comments. This paper was presented at the 21st International Conference on Computing in Economics and Finance June 20–22, 2015, Taipei, Taiwan. Sameer Rege gratefully acknowledges the FNR funding for the conference participation.

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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Sameer Rege
    • 1
  • Tomás Navarrete Gutiérrez
    • 2
  • Antonino Marvuglia
    • 2
  • Enrico Benetto
    • 2
  • Didier Stilmant
    • 3
  1. 1.ModlEcon S.ã.r.l-SEsch-sur-AlzetteLuxembourgLuxembourg
  2. 2.Luxembourg Institute of Science and Technology (LIST)BelvauxLuxembourg
  3. 3.Centre Wallon de Recherches Agronomiques (CRA-W)LibramontBelgium

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