Posted by: Jeremy Fox | July 25, 2011

Free idea for an Oikos Forum paper: untapped potential in biological market models

Biological market models are a way to think about the evolution of behaviors in which organisms exchange goods. Examples of such behaviors include the exchange of “nuptial gifts” for mating opportunities in some insects, and the exchange of photosynthetically-fixed carbon for mineral nutrients between plants and mycorrhizal fungi. One fruitful way to model such markets is by using standard models from economics to describe the behavior of “rational” (i.e. fitness-maximizing) trading partners. For instance, Hoeksma and Schwartz (2003) is just a standard economic model of “comparative advantage” in international trade, used to identify the conditions under which plants and fungi should engage in mutually-beneficial trade.

I’m not an expert on biological market models, but I do know a bit of economics, mainly picked up here and there from the economics blogs I follow. And based on my admittedly limited and non-systematic reading, as well as a bit of correspondence with economists, it seems like there is a lot of low-hanging fruit out there—a lot of economic ideas and models which could be applied pretty directly to biology. Many existing biological market models are just simple economics models. Economists have already done much of the hard work of thinking about more complex cases. So here are some possible opportunities for evolutionary ecologists to take that work and apply in in a biological context.

I freely admit some of the ideas below may be half-baked, or even complete non-starters, while others have perhaps already been explored in papers I’m not aware of. Hammerstein and Hagen (2005) and Fraser (in press) indicate that some folks working in this area are starting to think about at least some of these issues. But I’ll bet that at least some of these ideas remain less-than-completely explored, and would make really cool Oikos Forum papers with a bit of fleshing out.

Transaction costs. As far as I’m aware, all biological market models assume zero transaction costs. Producing goods in the first place is costly, but moving goods from one trading partner to the other is not. Sometimes this may be biologically realistic, but is it always? Qualitatively, it’s obvious that transaction costs decrease the scope for mutually-beneficial trading. But what’s their quantitative effect?

Partner choice. One of the first papers to highlight the utility (pun intended) of economic market models for evolutionary ecology (Noë and Hammerstein 1995) noted partner choice as a key issue in need of study. Different trading partners may be prepared to supply different amounts of goods at different prices; individuals will want to choose the trading partner offering the best deal. Individuals also will want to avoid “cheaters”, who can be regarded as trading partners offering a maximally-bad deal (cheaters accept goods without providing any goods in return). But as far as I can tell, partner choice hasn’t received much if any attention in the context of biological market models. It’s either assumed that all individuals of a given species offer the same deal, that trading partners pair off instantaneously and at random, or that different individuals have different propensities to trade but don’t care who they trade with. In contrast, in macroeconomics, the standard theoretical framework describing the formation of mutually-beneficial relationships (“search and matching theory”) is hugely important (the people who developed it were awarded the 2010 Nobel Prize in Economics for their efforts). One important insight from search and matching theory is that search and matching create “frictions”: because it takes time and effort to locate a suitable partner, some trading opportunities are never realized. Another important insight is that choosing a partner too quickly or too slowly (or sticking with an existing partner for too long, or not for long enough) can have costs. Choosing a partner too quickly risks choosing a poor partner and sacrifices the option value of waiting, while choosing a partner too slowly delays beneficial trades. Indeed, there’s reason to think that search and matching is a bigger challenge in biology than in economics, because some ways of reducing those costs (such as using money rather than barter) aren’t available in a biological context.

Imperfect or asymmetric information. What if you don’t have complete, accurate information about your partner’s production/acquisition costs? Or about your own costs? What if some partners have better information than others (asymmetric information)? The qualitative effect is presumably to inhibit trade, or to convert mutually-beneficial trade into parasitic exploitation, but what are the quantitative effects?

Exogenous “shocks”. Existing biological market models assume constant or equilibrium conditions. But what happens if conditions suddenly change? Indeed, we might expect that in nature conditions change frequently. One can study single “shocks” (i.e. a single, sudden change in conditions) by comparing the old equilibrium to the new one, as long as one is happy to neglect transient dynamics on the way from the old to the new equilibrium, and (in the case of a temporary shock) on the way from the new equilibrium back to the old. But that’s probably not a useful way to think about a stochastic world with recurring shocks, which might well have qualitatively different dynamics than any equilibrium world. This is an area where I’m actually not sure if existing economic theory is much help. The economic models I tend to encounter aren’t dynamically sufficient as far as I can tell, and so tend to consider only single shocks (permanent or temporary), rather than ongoing, repeated exogenous shocks or endogenously-generated fluctuations in conditions. McGill (2005) is an example of a dynamically-sufficient (but equilibrium) biological market model, and de Mazancourt and Schwartz (2010) is another dynamically-sufficient example (As an aside, a focus on the effects of single exogenous shocks seems to be one factor which screws up macroeconomists’ ability to understand the causes of cyclic dynamics, such as the alternation of economic expansions and contractions known as the “business cycle”. Ecologists may still be struggling to fully understand the causes of cyclic population dynamics, but as far as I can tell we’re well ahead of macroeconomists…)

Future expectations. In a changing world, expectations about the future matter. For instance, rather than trading right now, I might hold onto my goods if I expect their value to increase in future. Further, expectations themselves can change over time. And although natural selection itself isn’t forward looking, it can favor organisms that are forward-looking (like the squirrels which cache food to sustain them the following year). I’m not entirely clear on what current biological market models implicitly assume about future expectations, if anything. Perhaps expectations about the future are irrelevant in the context of models which assume constant, equilibrium conditions? I’m also unsure whether there are natural history motivations for thinking about future expectations in the context of biological markets. Are there any biological markets in which it’s plausible to think that traders might alter their current trading based on their expectations about the future? I sure hope there are, because economics models incorporating future expectations have lots of interesting and surprising features, such as the “Wealth Curse” (in many circumstances, future expectations will, on average, necessarily fail to be satisfied, meaning that, on average, individual traders are not as well off as they think they are).

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Responses

  1. […] blog, such as my “free idea for a provocative review paper” posts (see here, here, and here), are mostly those which I’m happy for others to pick up and run with, because realistically […]


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