Emergence: from chaos to order
Emergence: from chaos to order
Handbook of Computational Economics, Volume 2: Agent-Based Computational Economics (Handbook of Computational Economics)
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Market-based instruments for regulating scarce natural resources are increasingly considered as potential policy solutions for common-pool style resource problems. However, creating markets for resources such as water involve introducing institutional arrangements whose functioning depends on the behaviour of those people involved. Understanding bidding behaviour in newly created water markets is important when considering the use of this instrument. We explore this issue by developing an agent-based model (ABM) to test market-based instruments. Simulated agents are programmed with behavioural strategies observed during human experiments with local irrigators. Experiment participants revealed 11 strategies for bidding in a water market. The model simulates conditions for a number of possible scenarios where new irrigation licenses are granted, and where a water market under a cap-and-trade system is introduced.