# Agent (economics)

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Actor and decision maker in an economic model

In [economics](/source/Economics), an **agent** is an actor (more specifically, a [decision maker](/source/Decision_maker)) in a [model](/source/Economic_model) of some aspect of the [economy](/source/Economy). Typically, every agent makes decisions by solving a well- or ill-defined [optimization](/source/Optimization_(mathematics)) or choice problem.

For example, *buyers* ([consumers](/source/Consumption_(economics))) and *sellers* ([producers](/source/Production_(economics))) are two common types of agents in [partial equilibrium](/source/Partial_equilibrium) models of a single [market](/source/Market_(economics)). [Macroeconomic models](/source/Macroeconomic_model), especially [dynamic stochastic general equilibrium](/source/Dynamic_stochastic_general_equilibrium) models that are explicitly based on [microfoundations](/source/Microfoundations), often distinguish [households](/source/Household), [firms](/source/Business_entity), and [governments](/source/Government) or [central banks](/source/Central_bank) as the main types of agents in the economy. Each of these agents may play multiple roles in the economy; households, for example, might act as consumers, as [workers](/source/Workforce), and as voters in the model. Some macroeconomic models distinguish even more types of agents, such as workers and shoppers[1] or [commercial banks](/source/Commercial_bank).[2]

The term *agent* is also used in relation to [principal–agent](/source/Principal%E2%80%93agent_problem) models; in this case, it refers specifically to someone delegated to act on behalf of a [principal](/source/Principal_(commercial_law)).[3]

In [agent-based computational economics](/source/Agent-based_computational_economics), corresponding agents are "computational objects modeled as interacting according to rules" over space and time, not real people. The rules are formulated to model behavior and social interactions based on stipulated incentives and information.[4] The concept of an *agent* may be broadly interpreted to be any persistent individual, social, biological, or physical entity interacting with other such entities in the context of a dynamic multi-agent economic system.

## Representative vs. heterogenous agents

An [economic model](/source/Model_(economics)) in which all agents of a given type (such as all consumers, or all firms) are assumed to be exactly identical is called a [representative agent](/source/Representative_agent) model. A model which recognizes differences among agents is called a [heterogeneous agent](/source/Heterogeneous_agents) model. Economists often use representative agent models when they want to describe the economy in the simplest terms possible. In contrast, they may be obliged to use heterogeneous agent models when differences among agents are directly relevant for the question at hand.[5] For example, considering heterogeneity in age is likely to be necessary in a model used to study the economic effects of pensions;[6] considering heterogeneity in wealth is likely to be necessary in a model used to study [precautionary saving](/source/Prudence#Prudence_in_economics_and_finance)[7] or redistributive taxation.[8]

## See also

- [Agency (law)](/source/Agency_(law))

- [Demand set](/source/Demand_set)

- [Homo economicus](/source/Homo_economicus)

- [Market consumer](/source/Consumer)

## References

1. **[^](#cite_ref-1)** Lucas, Robert Jr. (1980). "Equilibrium in a pure currency economy". *[Economic Inquiry](/source/Economic_Inquiry)*. **18** (2): 203–220. [doi](/source/Doi_(identifier)):[10.1111/j.1465-7295.1980.tb00570.x](https://doi.org/10.1111%2Fj.1465-7295.1980.tb00570.x).

1. **[^](#cite_ref-2)** Fuerst, Timothy S. (1992). "Liquidity, loanable funds, and real activity". *[Journal of Monetary Economics](/source/Journal_of_Monetary_Economics)*. **29** (1): 3–24. [doi](/source/Doi_(identifier)):[10.1016/0304-3932(92)90021-S](https://doi.org/10.1016%2F0304-3932%2892%2990021-S).

1. **[^](#cite_ref-3)** [Stiglitz, Joseph E.](/source/Joseph_E._Stiglitz) (1987). "Principal and Agent". [*The New Palgrave: A Dictionary of Economics*](/source/New_Palgrave%3A_A_Dictionary_of_Economics). Vol. 3. pp. 966–971.

1. **[^](#cite_ref-4)** Page, Scott E. (2008). ["Agent-based models"](http://www.dictionaryofeconomics.com/article?id=pde2008_A000218&edition=current&q=agent-based%20computational%20modeling&topicid=&result_number=1). [*The New Palgrave Dictionary of Economics*](/source/The_New_Palgrave_Dictionary_of_Economics) (2nd ed.).

1. **[^](#cite_ref-5)** Ríos-Rull, José-Víctor (1995). "Models with Heterogeneous Agents". In Cooley, T. (ed.). *Frontiers of Business Cycle Theory*. Princeton University Press. [ISBN](/source/ISBN_(identifier)) [978-0-691-04323-4](https://en.wikipedia.org/wiki/Special:BookSources/978-0-691-04323-4).

1. **[^](#cite_ref-6)** Altig, David; Auerbach, Alan; Kotlikoff, Laurence; Smetters, Kent; Walliser, Jan (2001). "Simulating Fundamental Tax Reform in the United States". *[American Economic Review](/source/American_Economic_Review)*. **91** (3): 574–595. [doi](/source/Doi_(identifier)):[10.1257/aer.91.3.574](https://doi.org/10.1257%2Faer.91.3.574). [JSTOR](/source/JSTOR_(identifier)) [2677880](https://www.jstor.org/stable/2677880).

1. **[^](#cite_ref-7)** Carroll, Christopher (1997). ["Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis"](http://www.nber.org/papers/w5788.pdf) (PDF). *[Quarterly Journal of Economics](/source/Quarterly_Journal_of_Economics)*. **112** (1): 1–55. [doi](/source/Doi_(identifier)):[10.1162/003355397555109](https://doi.org/10.1162%2F003355397555109). [S2CID](/source/S2CID_(identifier)) [14047708](https://api.semanticscholar.org/CorpusID:14047708).

1. **[^](#cite_ref-8)** Bénabou, Roland (2002). ["Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?"](http://archive.nyu.edu/bitstream/2451/27361/2/S-MF-99-03.pdf) (PDF). *[Econometrica](/source/Econometrica)*. **70** (2): 481–517. [doi](/source/Doi_(identifier)):[10.1111/1468-0262.00293](https://doi.org/10.1111%2F1468-0262.00293).

## Further reading

- Hartley, James E. (1997). ["Retrospectives: The Origins of the Representative Agent"](https://doi.org/10.1257%2Fjep.10.2.169). *[Journal of Economic Perspectives](/source/Journal_of_Economic_Perspectives)*. **10** (2): 169–177. [doi](/source/Doi_(identifier)):[10.1257/jep.10.2.169](https://doi.org/10.1257%2Fjep.10.2.169). [JSTOR](/source/JSTOR_(identifier)) [2138488](https://www.jstor.org/stable/2138488). [S2CID](/source/S2CID_(identifier)) [154459239](https://api.semanticscholar.org/CorpusID:154459239).

- Kirman, Alan P. (1992). ["Whom or What Does the Representative Individual Represent?"](https://doi.org/10.1257%2Fjep.6.2.117). *[Journal of Economic Perspectives](/source/Journal_of_Economic_Perspectives)*. **6** (2): 117–136. [doi](/source/Doi_(identifier)):[10.1257/jep.6.2.117](https://doi.org/10.1257%2Fjep.6.2.117). [JSTOR](/source/JSTOR_(identifier)) [2138411](https://www.jstor.org/stable/2138411).

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