On the emergence of exchange and mediation in a production economy

In this paper we simulate the behavior of a population of boundedly rationa l agents in a two good economy where all agents can spend their time budget for the production of one or both goods or trading. Agents update their st rategies according to a simple imitation type learning rule with noise. It is shown that in several different setups both direct trade and trade via m ediators who specialize in trading can emerge. Both increasing returns to s cale in production and heterogeneity of production technologies facilitates the development of trade. For heterogeneous production technologies we can also observe the transition from a pure production economy via direct trad e to an economy with mediated trade. (C)2000 Elsevier Science B.V. All righ ts reserved.