This model is designed to test a choice of indexing methods for supply contracts.
Implemented in NetLogo, the model contains two classes of agents: households and firms. It always contains a certain number of firms which produce homogeneous consumer goods and sell them to households. In addition, the model can contain an arbitrary number of primary and intermediary good firms which supply inputs to one another and to the consumer good firms. The model allows for an arbitrarily complex network of primary and intermediate firms supplying goods to one another, and ultimately, to the consumer goods firms. The purpose of this added complexity compared to prior MABMs is to address two interrelated research questions:
How does the network structure of firms in the economy affect volatility of macro-level variables?
What effect can indexed supply contracts have on both individual firm performance and volatility of macro-level variables?
A typical supply contract specifies a unit price for the good to be supplied and lasts for a specified duration. The buyer can order their desired amount at the specified price. Volatility in the prices of a supplier’s input goods puts them at risk of either being forced to sell at a price which is no longer profitable or else to break the contract. Indexing the price of a contract (e.g. to a primary goods price index) could mitigate this risk at the micro-level as well as decrease volatility at the macro-level.