[SPACE] World Trade

[Agemegos]

Originally Posted by Ulzgoroth

Could it be that the model is okay, but over time trade imbalances will result in changes to V (about which this model makes no predictions) which will have the effect of eliminating the imbalance?

That sort of thing is certainly possible. Other effects that result from trade imbalances include exchange rate effects (price level effects where you have uniform currency) and growing divergence between GNP and GDP (which Space treats as the same): these too tend to inhibit imports and consumption and promote exports and production, restoring trade balance. I'm very certain that trying to include such effects in a model for gaming is way overkill, not fun, and much too much like work.

I would be inclined (if I had any real interest in trade volumes) to use the logit model I suggested above, make transport costs high to make sure trade volumes were small compared with world economies, tweak k and l until there were no problems that I could see without putting my glasses on, and not sweat any remaining discrepancies.

I don't know whether long-term trade deficit would decrease V(i), but it seems plausible.

It certainly is. If a long-term trade deficit is not covered by interest and dividend receipts (or, now that I think of it, tax or tribute) from overseas then you accumulate debts or foreigners accumulate equity in your productive assets, and in those cases GNP falls below GDP. GNP is what you get to spend and ought to replace V(j), your economic volume when considered as an importer.

Even when you do have large receipts of interest, dividends, and tribute, that can harm your local economy, as Spain discovered during the glut of American silver. Either international money (silver, say) becomes plentiful in your economy and the local price level rises or your exchange rate appreciates; either way imports become cheaper than local products, local production becomes unprofitable, and your GDP tends to fall.

[hal]

Agemegos - could you send me a private email message so I can take this off the list? I would like to communicate with you more fully about how to implement your ideas, but need a step by step procedure to follow - which is why I'd like to ask if it could be created using Excel or something to that effect. If I want to use VB to run the calcs, I have to know how it is implemented (which an Excel spreadsheet would help point the way).



By the by? If you're not inclined, don't feel too badly, I understand you have a life at home and aren't perhaps in the best of health. Either way, thanks for the information you've provided thus far, and thanks for the help if you do go private with it.

Hal

[Agemegos]

Originally Posted by hal

By the by? If you're not inclined, don't feel too badly, I understand you have a life at home and aren't perhaps in the best of health.

Of course! Why should I feel bad about declining to do unpaid consultancy work for a stranger?

[Agemegos]

I've been fooling around with this for a couple of hours, using location and economic volume data for the hundred colonies nearest Earth in my setting — and it isn't working at all well. I'm forced to use volumes and prices in billions of dollars to avoid overflowing Excel's number representation. And I'm getting enormous trade imbalances in the small economies.

I reckon that my approach to normalising the proportions is wrong. I'll look into treating each world as a nest of consumers some time later, when I feel more up to wrestling with the consumers' budget constraint.

[Agemegos]

Okay, let's try starting from first principles. We have n worlds. Each with GDP equal to its GNP, and with value Vi for world i. The total of all the Vi is ∑V. We're going to assume bilateral trade balance (ignoring triangle trades), because this makes the problem simple enough to solve. I'm going to ignore tariffs, and assume that the transport costs from A to B are the same as B to A, and treat all commodities as having the same ratio of freight costs to value, for simplicity.

Suppose that there were no transport costs, and that consumers bought goods without regard to their origin. The probability that any given shilling would be spent on a product from planet i would be Vi/∑V. The number of shillings earned at world j is Vj, each with a probability of being spent on product from i of Vi/∑V, which means the total income earned at j and spent on product from i, i.e. the trade from i to j, would be Ti,j = Vj*Vi/∑V. Multiplication is commutative, so Ti,j = Tj,i: we have bilateral trade balance on all pairs. Domestic consumption is included as trade in the Ti,i terms, so the budget constraint would assure us if algebra did not that ∑Ti,j = ∑Vi = ∑Vj.

Now, random utility theory suggests that transport costs will tend to suppress consumption proportionately to a logistic function of the increase of price. So if we multiply each Ti,j by a logistic function of the generalised cost of transport from i to j the resulting T'i,j will be in the right ratios, and bilateral balance will be preserved if transport costs are symmetric — but consumers will not be consuming or investing their entire budgets. We can preserve the symmetries and the ratios between different T values by a scalar multiplication, and the appropriate factor is ∑V/∑T.

I'm going to try that out in a spreadsheet. Someone please check my logic.

[hal]

Originally Posted by Agemegos

I've been fooling around with this for a couple of hours, using location and economic volume data for the hundred colonies nearest Earth in my setting — and it isn't working at all well. I'm forced to use volumes and prices in billions of dollars to avoid overflowing Excel's number representation. And I'm getting enormous trade imbalances in the small economies.

I reckon that my approach to normalising the proportions is wrong. I'll look into treating each world as a nest of consumers some time later, when I feel more up to wrestling with the consumers' budget constraint.

TRAVELLER uses a set currency block known as Megacredits, and one could have a million megacredits - which Excel can treat as a "million" somethings instead of having to use Billion of somethings

:)

I don't know if that helps or not.

[Agemegos]

Originally Posted by hal

TRAVELLER uses a set currency block known as Megacredits, and one could have a million megacredits - which Excel can treat as a "million" somethings instead of having to use Billion of somethings

:)

I don't know if that helps or not.

I was doing that, with freight rates as a tiny, tiny number of gigashillings per tonne per light-year. Then I realised that I would do best to work with the ratio of freight charges to value instead of freight charges to mass, which let me dump any arbitrary constant.

The real problem is that my normalisation trick just doesn't work. I've forgotten something about matrix algebra, and I can't remember what. When I try to use economics I keep getting exchange rate or price level effects that screw things up. I'd like to help, but I'm afraid I can't, at least for now.

[Hans Rancke-Madsen]

Originally Posted by Agemegos

I'm very certain that trying to include such effects in a model for gaming is way overkill, not fun, and much too much like work.

That seems to me to be a very salient point. I'd like a trade system that allows me to figure out the gross effects, so that I don't wind up giving a world with 700 million inhabitants a defense force of 10 200T vessels and can detemine whether this backwater world is visited by one ship a month or ten ships an hour. But as long as the model I use puts me in the ballpark, I'm good. After all, I believe the subject is sufficiently complex that you have to simplify it to the point of gross inaccuracy to make it managble, so why sweat the small stuff?



Hans

[hal]

Originally Posted by Agemegos

I was doing that, with freight rates as a tiny, tiny number of gigashillings per tonne per light-year. Then I realised that I would do best to work with the ratio of freight charges to value instead of freight charges to mass, which let me dump any arbitrary constant.

The real problem is that my normalisation trick just doesn't work. I've forgotten something about matrix algebra, and I can't remember what. When I try to use economics I keep getting exchange rate or price level effects that screw things up. I'd like to help, but I'm afraid I can't, at least for now.

Not to worry then. Thank you for trying! :)

[Ulzgoroth]

Originally Posted by Agemegos

I've been fooling around with this for a couple of hours, using location and economic volume data for the hundred colonies nearest Earth in my setting — and it isn't working at all well. I'm forced to use volumes and prices in billions of dollars to avoid overflowing Excel's number representation. And I'm getting enormous trade imbalances in the small economies.

I reckon that my approach to normalising the proportions is wrong. I'll look into treating each world as a nest of consumers some time later, when I feel more up to wrestling with the consumers' budget constraint.

Hmm. Could it be coming from T(i, i) varying as V(i)^2? I'd overlooked that before. That will mean that the smaller the economy, the higher the fraction that goes to exports. Meanwhile, if V(i) << V(j), A(j, i) should be approximately linear in V(i). So a tiny colony gets imports proportional to its size but exports practically everything it produces.

...Does that agree with the direction of your imbalances?