Chapter 3. Endogenous Firm Dynamics and Labor Flows via Heterogeneous Agents

A model is described in which large numbers of simple agents organize into groups that empirically resemble U.S. firms. The agents work in team production environments, regularly adjust their work effort, and periodically seek better jobs or start new teams when it is in their self-interest. Nash equilibria of the team formation game exist but are unstable. Dynamics are studied using agent computing at full-scale with the U.S. private sector (120 million agents). Stationary distributions of firm sizes, ages, growth rates, wages, job tenure and so on arise at the aggregate level despite perpetual adaptation at the agent level. Such agent adjustments occur for microeconomic reasons without the need for external shocks.