## "Asymmetric information in the market for lemons"

created with NetLogo

WHAT IS IT?
-----------
This model wants to simulate a simple economic market in which are present two kinds of agents: "sellers" (patches) which sell anyone with a different level of price and "buyers" (turtles) that want to buy with a own price level; these variable for prices
(buyer and seller) and are created by random.
The trade is done based on the application of a particular "rule of price" that we see in details below in "HOW IT WORKS".
We introduce two different types of simulation that will be explain below in "HOW TO USE".

This model is inspired on the work of the economist George A. Akerlof (1970) "The market for lemons: quality uncertainty and the market mechanism".

HOW IT WORKS
------------

We represent "sellers" by the patches, they are differently colored based on the price at which they are available to sell; we assumed that the maximum level of priceSellers is 3000 and after that variable is generated by random, the patches are variously colored: yellow if the their price is < 1000, green if their price is beetween 1000 and 2950, and pink if > 2950 (till the maximum level of 3000).
The patches have also a variable called "TransactionDone", that can assume value of
0 or 1, based on the fact that the transaction is effectued or not (with a fixed rule).
The "buyers" are represented as turtles with shape of person; an important variable for them is "priceBuyers", that means the price at which they are available to buy.
They move themself on the market at any clock with random direction.

We introduce a "rule of price" that fix the moment in which the transaction is done, particularly: when the price the buyer wants to purchase ("PriceBuyers") is >= the price the seller is available to have trade ("PriceSellers"); if it occure, the buyer takes on the colour red, after that it returns blue (default color).

HOW TO USE IT
-------------

First of all, it is possible to modify the number of buyers present on the market, because they are expressed as a percentual on the number of sellers trough the slider %BUYERS/SELLERS.
Their number is show on the display of buyers.

With the SETUP button the world in which the agents interact is create, like also the values for the variables of patches and turtles.

There are two different type of simulation available:
ONLY RESEARCH OF EXCHENGE button.....> it represents a simulation in which the buyers move themself along the market and in every moment try to trade with the sellers they are in contact (with the patches on which they are), controlling in every moment the application or not of the fixed rule of price.
In the case of trade, they colour themself red ifelse they are blue (default colour).

THE MARKET FOR LEMONS button.....> it represents a scene similar to precedent, but when the transaction is done (value for "TransactionDone = 1), the seller colour itself of black and it will be not considered in the following actions, that means it will not enforce in future the rule of price for that patch.
In this way we can take evidence from the presence of sellers that are not able to trade and in long time will be drive out from the market (representing a dynamic evidence).

The are four graphics that represent some important dynamic that take place during the simulation.
They are differently used during the two kinds of simulation thought for this model:
ONLY RESEARCH OF EXCHANGE......> use the graphics RESEARCH OF EXCHANGE (BUYERS) and RESEARCH OF EXCHANGE (SELLERS), that show in every moment the number of buyer/sellers are buying and selling (or not).
THE MARKET FOR LEMONS.....> use the graphics RESEARCH OF EXCHANGE (BUYERS), that works as said before; TRANSACTION DONE (SELLERS), that show the number of sellers that in this dynamic context have traded or not; THE AUTOMOBILIES MARKET that show the presence on the market for the different kind of sellers (based on the price of trade), relating the presence on the market of sellers that havent't able to trade with the quality of goods that they selling (good car, lemons car or excellent car).

THINGS TO NOTICE
----------------

It's possible to slow down the simulation by take ON the slider LIMIT-SPEED?

THINGS TO TRY
-------------

The value of %BUYERS/SELLERS can be interpreted as a mesure of goods demand in the market.
It's interesting to modify this value in order to simulate different sceneries.

EXTENDING THE MODEL
-------------------

A limit of this model is the rules by which the prices are create in the market especially for the buyers and their constancy in the long term; it can be improved in order to show more realistic methods, expecially for process of learning for the buyers.

CREDITS AND REFERENCES
----------------------
This model was created as a project work for the course of "Computer Science, Simulation and Economics" (2004-2005) by Professor Pietro Terna, Faculty of Economics, University of Turin.
The authors of the model are E.Ascheri, M.Covolan, A.Guglielmo, S.Poy (2005).