Adaptive Economic Operating System

Economic agents

The model is built from interacting agents rather than a handful of aggregate variables, because the marginal use of a pound of income, credit or public spending depends on who receives it.

• Households are heterogeneous, not representative. Household i's state includes gross income, wealth, debt, housing costs and labour supplied; a useful derived quantity is discretionary economic capacity, DEC_i(t) = Y_gross − T + B − E_ess − DebtService — post-tax, post-transfer income left over after rent or mortgage, food, energy, transport, childcare and health. Two households on identical gross incomes can occupy very different economic states depending on E_ess and existing debt service.
• Firms choose price, durability, repairability, recycled content, energy efficiency and investment as a function of expected demand, cash flow, borrowing capacity and the prevailing tax and regulatory signal.
• Banks are explicit balance-sheet agents, not a passive conduit for pre-existing savings. Assets (loans, securities, reserves) must equal liabilities (deposits, funding, equity) at all times; new lending simultaneously creates new deposit money, subject to capital, liquidity and regulatory constraints. Credit is therefore endogenous to confidence, collateral values and regulation — not a fixed stock.
• Investors and landlords respond to yields, collateral values and relative asset prices, and their behaviour couples back into credit creation and housing costs.
• Government acts as the fiscal and regulatory controller, but is itself one balance-sheet agent among several, not an entity outside the system.

Each agent's action is a function of its own state, the prevailing prices and policy signals, and its own behavioural parameters — a_i(t) = π_i(x_i(t), u(t), p(t), e_i(t), θ_i(t)) — so the same policy change can produce very different responses across the population. That heterogeneity, not a single "representative agent", is treated as central to the model.