Simulation Model

[August 11, 2014 note: A revised version of the paper "First Microsimulation Model of a LEDDA Community Currency--Dollar Economy" has been posted to the IDEAS website. Further revisions may occur in preparation for publication. Check back for updates.]

The simulation model emulates token–dollar flow in a virtual U.S. county. A paper on the model, titled “First Microsimulation Model of a LEDDA Community Currency–Dollar Economy,”  has been submitted for publication. A pre-publication version is available for download at http://ideas.repec.org/p/psp/wpaper/0001.html. An appendix to the paper is available at http://ideas.repec.org/p/psp/wpaper/0002.html. Please see the pre-publication version for a full description.  Python code to run the model is available for download. A collection of graphs produced by the model is also available.

The aims of the paper are to introduce the LEDDA framework, describe general concepts of token–dollar flow, and demonstrate that a set of parameters exists that results in increased mean family income, full income equality, and full employment, for the simulated member population. Results presented in the model are for a county population of size 100,000 adults.

The model, while hypothetical, is semi-realistic in the sense that dollar flows at the start of the simulation resemble those of a real county economy, and conditions evolve from this base. For example, starting income levels resemble real income levels, and tax rates resemble real tax rates.

The model is concerned only with a limited set of events and flows within the token–dollar economy. The dollar economy and demographics serve primarily as a static backdrop. Thus, for example, inflation, normal economic growth, personal savings and investment, birth and death of individuals, and income changes for non-members are not modeled. While such variables might be important for a model intended to describe the dollar economy or make forecasts about it, neither of these is an aim. The model describes a token–dollar economy, and is not predictive.

Although the model is elementary in many respects, it represents a milestone; it is the first simulation model to examine semi-realistic flows of complementary and national currency within a local economy. It sets the stage for future studies that will expand the model, assess its assumptions, and examine whether such results can be practically achieved in a real LEDDA.

For simplicity, it is assumed that all adults in the county are married, two to a household. By construction, the LEDDA participation rate starts at 5 percent of county residents in Year 1 and grows to 90 percent in Year 15. This interval is called the growth period. Also by construction, the income target and token share of income (TSI) target steadily rise during this period.

The income target is a series of annual token plus dollar (T&D) incomes that some members receive. Likewise, the TSI target is a series of TSI values that apply to the income target. (TSI is the the fraction of a member’s income that is paid in tokens.) In the simulation, both targets are constructed using a linear growth formula.

The TSI target starts at 5 percent in Year 1 and grows to 35 percent in Year 15. By construction, no new members join after the growth period ends, and both the income and TSI targets remain steady until the simulation ends in Year 28. Only minor effects are seen after Year 15 for most of the variables tracked. In a real LEDDA, income and TSI targets, and CBFS earmarks (fractions of income contributed to the CBFS), would be democratically chosen by members before operations begin, and could be amended over time as necessary.

In short, the model describes how the participation rate, income and TSI targets, CBFS earmarks, and other more minor parameters affect the income, TSI, and job status of individual members.

As noted, 90 percent of the county population joins the LEDDA by the end of the growth period. While members might be attracted for multiple reasons, it is assumed in the simulation that they join due to income gain. Every person who joins and who receives tokens obtains an income increase. (Some members do not receive tokens right away.) Persons who have low starting incomes see proportionally greater income gains. The 90 percent that join all come from families with starting incomes below the 90th percentile (below about $101,000 per year). This group is called the target population. Gains for persons who come from higher-earning families are modest, and might not be enough to motivate membership. In a real LEDDA, however, members would likely come from all income brackets because all families could gain in well-being, even if they gain little in income.

Paper Abstract (draft)

Results are presented for a first-in-class microsimulation model of a community currency system. The agent-based, stock-flow consistent model uses U.S. Census income data as a starting point to project the evolution of community currency and dollar flows within a simplified county-level economy over a period of 28 years. Changes in the distribution of family income are tracked. The community currency system under investigation is the Token Exchange System (TES), a component of the larger Local Economic Direct Democracy Association (LEDDA) framework under development by the Principled Societies Project. The model captures key design features of a TES, and results suggest parameter ranges under which the simulated TES is stable and capable of achieving intended aims. Median take-home family income more than doubles during the simulation period, income inequality is nearly eliminated, and the unemployment rate drops to a 1 percent structural level. The need for more sophisticated modeling of a TES and avenues for future research are discussed.