Economic Development Model - Opinions Please?

[Mark_Everson]

Hello The Diamond, and welcome to the forums. Since you given me a whole lot of stuff to respond to, each answer is going to be painfully brief...

One suggestion... for the things that you think we might have put in the models, but haven't come across yet, try using the search feature. For instance, in your merchant comments you mention about merchants having actual routes. They do, and we discuss that in a thread specifically dedicated to the merchant model. With luck, a forum search using merchant and route as the keywords would have turned it up.

The people generally don't specialize in specific trades like carpentry in the model. I thought that was just too detailed. The only way we have to do that in a crude fashion is by using Specials to represent important subcomponents of the economy.

You seem to think prices are static. Prices vary with the local market. So if you start cutting down all the trees (ecology model) the amount of resources will decrease, and the price of resources will then go up, making the people build fewer houses... However, because the price of resources has gone up, if there is a cheap way to get resources into the province, merchants will seize that opportunity to make a profit. It really works about as close to the real world as I think we can get in a game. Anyway, prices of both the fundamental things like food and goods, and more complex things like infrastructure change with the local market.

Currently, the merchant model only handles long-distance trade. We could change that so that merchants could also make money with intra-province trade. There is a whole thread on merchants that you should find, and please put these comments there, because they're likely to get lost in this thread. In case you don't figure it out yourself you could edit your post above, and while in edit mode just copy all the text on merchants, and then start a new post in the merchant thread with it. Currently the plan is that merchants that come from the people do their own thing, whereas if the government commissions merchants, the player gets to tell them what to do. But we have to make this streamlined, or it will be a micromanagement nightmare.

[The Diamond]

You know, I just knew I'd put my foot in it. Didn't know about searching entries, sorry. I'll transfer the stuff l8r, when I've got more time.

Thanks for clarifying things for me.

[Mark_Everson]

The Diamond: No Problem, I realize you're just trying to get a fast start...

All:

I have finally finished my Excel spreadsheet that details much of the guts of the demo 5 economic model. You can change the number of sites, labor, capital, production technology, tax rate, and numerous other parameters, and see how the economy works, and adjusts to what the player does. I primarily came up with it as a tool for me and Laurent to use for coding of low-level aspects of the system. But if you are fairly familiar with the system and what it is supposed to do, you could probably play around with it successfully. If anyone would like it, just e-mail me and I'll ship it off to you.

[Richard Bruns]

The Diamond: Some of your comments deal with the vegetation of the land. At this point, the ecology model is much more flexible than the economic model. If you want to change the ecology model in some way, let me know and I'll see what we can do. Currently we don't track vegetation in the detail you describe. There are many discrete vegetation types, each with fixed characteristics.

[The Diamond]

Mark, I couldn't help but noticing something in the demo 5 economic model.

In the very first section on calculating production, you included the calculations for marginal production increase on the far right. I was altering the technology levels slightly when I noticed that there's a slight paradox.

I've probably got this totally wrong, but I was assuming that T(ideal f) was not the upper bound of the A(tech f) function. If I'm wrong, ignore what I'm about to say right now.

Anyway, since you said at the top that 5 was the level for a low tech province, I raised the farm A(tech f) level to 8.00. In doing this, I noticed that for adding an extra unit of capital, a negative figure was given for production increase.

In other words, buying another hoe actually made you produce less. That goes against all economic thinking that I know of. I assume we're dealing with increasing/decreasing returns to scale, in which case for an extra unit of capital in a huge production line, maybe only a 0.02 production increase would be seen (ie, 200 capital units needed to increase production by 1), but I'm unaware of any circumstance that adding factors of production causes less to be produced overall.

I'm sure this means I've probably got a concept wrong somewhere along the line, but it's bugging me. I'd be glad if you could point out what I've misinterpreted...thanks.

[Mark_Everson]

LGJ:

Actually, this Is the new tech model. The one that is the old tech model is the one that's in demo 4. We can use all of the discussion of This one that we can get

The things that you talk about in your post our so-called "constrained" production functions. The production function I use in the model isn't of this type, and so The Diamond's criticism of the model was quite legitimate. The classic case of a constrained production function is when you have guys digging a ditch. If you have five shovels per guy, it isn't much more productive than one shovel per guy. Past having a few spares around the extra shovels do absolutely no good.

[Mark_Everson]

I think I have a good workaround for the T less than A condition. Basically the amt of capital you build doesn't change A if T is less than A. A just declines something like 10% of the way to T each turn. This simulates old things that aren't understood becoming unusable and being scrapped finally in the Very long term. This rationale doesn't work as well with catastrophic infrastructure loss, but we can handle that by a one-time big hit to A.

[Mark_Everson]

Hi The Diamond:

Yep, you found a Bad thing in the model! First let me say that in Most cases T is supposed to be the upper bound of A. However in times of tech decline, or reductions in infrastructure, T can get 'behind' A. The problem comes from my simple formula:
Anew = Aold + (Kbought/(2Kold))*(T-Aold) [I changed it in the spreadsheet from what's in the thread above]
The basic idea is that when you buy new capacity you do it at the best technology available...
I think this quickie formula is ok when A is below T, the usual case. However when they switch over, then you drag down productivity of existing capacity too much. At a quick guess we need a different formula when T is below A. I Do want A to decline when T isn't adequate to support existing production techniques, but the effect should not be as dramatic as what the current formula gives.

I need to think about either a better formula that works for the whole range, or at a minimum something that avoids this embarassment by using a different formula for the T below A case that doesn't work! If you'd like to make suggestions, you're welcome to. But please think carefully about them first because there are a lot of ways to go wrong with something like this... As I've amply demonstrated

Thanks for pointing it out

Mark

BTW watch out for less-than signs. It gets misinterpreted as HTML by the script. I noticed when only half of my post made it...

[This message has been edited by Mark_Everson (edited June 08, 2000).]

[Lord God Jinnai]

First of all, don't worry to much on that economic model, its being replaced. But I guess I can inform you as to why you saw a negative increase.

Basically you had too many people (assuming 1 people per hoe) in use on the land. There is a point on the scale when having too many people becomes bad because they get in each others way. That is what probably happened. Its not a paradox or (probably) not a coding problem, but is a real world problem that actually does happen. For a better picture, lets say you have a 50 meter x 50 meter room and you need to sweep the floor. 1 person can do it, 2 in shorter amount of time and so on. However there comes a point when thins slow down. Would you use 60 people to clean it? If so they'll be getting in each others ways, most likely sweeping over areas already clean, sweaping up others dirt and stepping on it, etc. Just too many people.

[The Diamond]

Okay, one thing I notice here:

This is a very common misconception about short-term increases to factors of production of a great scale. Let's take Mark's example of digging a ditch...

We have a ditch that needs to be dug. Only 3 men can work on the ditch at any one time. Assume that capital (spades) is fixed at 3.

If we have one man and three spades working on the ditch (1 labour, 3 capital), he'll get there in the end. However, 2 spades are going unused and, assuming they're well made and won't break, having them as spares is useless.
If we then have two men or three men working on the ditch, it'll be made a lot faster. If we then have 6 men, it will still me made faster, as the men can take rests, etc. If we have 12 men, the ditch will still be made faster:

At no point does the speed of production slow down. The more labour you add, the quicker it will be - always. Capital isn't quite the same (spades can't work themselves), except in terms of robotics.

The issue then is not speed, but as Mark phrased it "productivity" (time/labour). What we see is that the marginal productivity increase for adding 1 extra unit of labour gets smaller and smaller. When you use 3 men instead of 2, the marginal productivity will be quite high. However, by the time you get to adding the 60th man on, the decrease in time will be almost insignificant...although it will not increase.

However, there is a reason why we don't use a 60 man workforce - cost. There comes a time on the production schedule when the cost of employing the extra man outweighs the decrease in time that he gives. Exactly where that point lies can be calculated.

Anyway, this is slightly off the issue. I'm just glad it wasn't my brain working on a tangent to the model after all.

[Lord God Jinnai]

This is a very common misconception about short-term increases to factors of production of a great scale. Let's take Mark's example of digging a ditch...

We have a ditch that needs to be dug. Only 3 men can work on the ditch at any one time. Assume that capital (spades) is fixed at 3.

If we have one man and three spades working on the ditch (1 labour, 3 capital), he'll get there in the end. However, 2 spades are going unused and, assuming they're well made and won't break, having them as spares is useless.
If we then have two men or three men working on the ditch, it'll be made a lot faster. If we then have 6 men, it will still me made faster, as the men can take rests, etc. If we have 12 men, the ditch will still be made faster:

At no point does the speed of production slow down. The more labour you add, the quicker it will be - always. Capital isn't quite the same (spades can't work themselves), except in terms of robotics.

The issue then is not speed, but as Mark phrased it "productivity" (time/labour). What we see is that the marginal productivity increase for adding 1 extra unit of labour gets smaller and smaller. When you use 3 men instead of 2, the marginal productivity will be quite high. However, by the time you get to adding the 60th man on, the decrease in time will be almost insignificant...although it will not increase.

However, there is a reason why we don't use a 60 man workforce - cost. There comes a time on the production schedule when the cost of employing the extra man outweighs the decrease in time that he gives. Exactly where that point lies can be calculated.
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I must diagree with this entirely. Anyone who knows anything about any of the fundimental economic theory is that there is such thing as too much. Lets say you had enough captial and enough labar (men=shovels). Reguardless of the size of the ditch, only so many men can work on it at a time, even if you had them working night and day only so many people can work on it then. If you have more those people just can't work because there's no room to put the shovel and dig without slowing someone else down, thus effenciency decreases. I mean would you build a brick wall and have 5 people for each brick even if the cost was really low? Come on they'd just get in each other's way trying to work or some would simply not work wasting your money thus margical return begins to go into margical loss and then exponentional loss following the bell curve for productivity. This is one reason smaller companies can sometimes compete much better with larger companies because they don't have so much redudancy and people don't get in each others way.

[The Diamond]

You're making a false assumption. No-one said that all the people had to be working at the same time. You could have 6 people working for 5 minutes and then another 6 could replace them when they got tired and their speed started to decrease.

Eventually, you'd reach the stage when the time taken for a quicker switch over would exactly equal the time lost if you didn't switch over. At that point you are operating at your maximum possible speed, given current constraints. No further speed increase is possible, therefore extra labour simply adds to costs without increasing speed.

Speed still does not and never will decrease unless you have more than one constraint, in this case, space. My example says that only 6 men can work at the ditch at one time. That's an important assumption to make, otherwise your point is correct. There is a limit to how many people can fit round the digging site without getting in each other's way. If you force extra labour to get in the way and not to replace existing labour when they get tired then yes, speed will decrease. However, a sensible foreman would realise this and organise the workforce better...

[Lord God Jinnai]

Now what I'm saying is that we will have a constraint of space or something since we have only so much space to work on with each tile and whatnot. Also speed will decrease if you are constantly shifting over once you've hit the maximum possible speed because you then will be spending more time switching over than actually working and thus speed and effiency will fall.

[Lord God Jinnai]

Double Post.
[This message has been edited by Lord God Jinnai (edited June 13, 2000).]

[The Diamond]

Eventually, you'd reach the stage when the time taken for a quicker switch over would exactly equal the time lost if you didn't switch over. At that point you are operating at your maximum possible speed, given current constraints. No further speed increase is possible, therefore extra labour simply adds to costs without increasing speed.

-------------------------

That's exactly what I said. Once you reach this stage, or go slightly over it - it will be pretty obvious. A manager/foreman or whatever would then advise against employing any more labour and may look at increasing another factor of production if speed needed to be increased further.

Space constraints are relatively easy, although they change as miniaturisation techs become more apparent...