Abstract
Researchers from the Brandeis International Business School, in collaboration with King Abdullah Petroleum Studies and Research Center (KAPSARC) are building an agent-based simulation model that encompasses the scenario building efforts of Shell, et. al. on energy and climate models (Shell, BP, IEA, EIA, IPCC). This research contributes to the literature on the complexity of economic systems, showing how heterogeneity, path dependency, feedback loops, and learning by agents can dramatically alter price expectations and outcomes – investment and production -- predicted by traditional (equilibrium) economic or VAR models (e.g., how NOC or IOC agents react to price changes/surprises, shale production, and climate change goals / rules). Analyzing and parsing the investment and production decisions of different producers gives us the tools to model the dynamics of energy markets. We look at agents’ endogenous investment behavior to gain a better understanding of investment cycles and to model the transition from higher cost fields (regions) to a more sustainable future.