nep-cmp New Economics Papers
on Computational Economics
Issue of 2007‒01‒02
four papers chosen by
Stan Miles
Thompson Rivers University

  1. On the Evolution of Investment Strategies and the Kelly Rule – A Darwinian Approach By Lensberg, Terje; Schenk-Hoppé, Klaus Reiner
  2. Market-oriented innovation: When is it profitable? An abstract agent-based study By Tanya Araujo; R. Vilela Mendes
  3. Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis By Faruqee, Hamid; Laxton, Doug; Muir, Dirk; Pesenti, Paolo
  4. State-Owned Enterprise Behaviour Responses to Trade Reforms: Some Analytics and Numerical Simulation Results Using Chinese Data By John Whalley; Shunming Zhang

  1. By: Lensberg, Terje (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Schenk-Hoppé, Klaus Reiner (Leeds University Business School, University of Leeds)
    Abstract: This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term performance can emerge in markets populated by unsophisticated investors. Regardless whether the market is complete or incomplete and whether states are i.i.d. or Markov, the Kelly rule is obtained as the asymptotic outcome. With price-dependent rather than just state-dependent investment strategies, the market portfolio plays an important role as a protection against severe losses in volatile markets.
    Keywords: Evolutionary finance; portfolio choice; asset pricing; genetic programming
    JEL: C63 G11
    Date: 2006–12–19
  2. By: Tanya Araujo; R. Vilela Mendes
    Keywords: agent-based models, innovation, artificial societies
  3. By: Faruqee, Hamid; Laxton, Doug; Muir, Dirk; Pesenti, Paolo
    Abstract: In the evolving debate and analysis of global imbalances, a commonly overlooked issue pertains to rising protectionism. This paper attempts to fill that gap, examining the macroeconomic implications of trade policy changes through the lens of a dynamic general equilibrium model of the world economy encompassing four regional blocs. Simulation exercises are carried out to consider the imposition of uniform and discriminatory tariffs on trading partners as well as the case of tariff retaliation. We also discuss a scenario in which a ‘globalization backlash ’lowers the degree of competition in import-competing sectors, and compare the implications of higher markups in the product and labor markets.
    Keywords: current account deficit; multi-country DGE models; net asset positions; trade policy
    JEL: E66 F32 F47
    Date: 2006–12
  4. By: John Whalley; Shunming Zhang
    Abstract: We note the absence of prior literature on analytical structures to be used for China and other economies with extensive SOEs when evaluating behavioural responses of SOEs to trade policy and other changes. This is despite both the large empirical literature discussing the productivity effects of Chinese SOE enterprise reform, and wider policy discussion of the potential impacts of various reform initiatives. We present two simple analytical formulations of SOE behaviour in response to trade policy change with the aim of investigating how traditional competitive models of enterprise behaviour can mislead when used in policy debate. One formulation centres on SOE managerial control. In this enterprise managers are politically appointed, expect any non performing loans to be recapitalized by state banks andhence capital is centrally allocated by credit rationing. The managers are assured to maximize the size of the enterprise rather than profits since this yields maximal networking benefits to managers. This implies labour is priced at its average rather than its marginal product, and with a competitive non-manufacturing (agricultural) industry free trade is not optimal policy. The other assumes worker control of SOEs and that workers satisfice in their supply of effort to the enterprise given both fixed wage rates and enterprise employment and otherwise shirk or pursue second jobs. In this formulation the enterprise meets their budget constraint and covers costs. With leisure in the preferences of enterprise members, their leisure consumption will be implied by the satisfying behaviour of the enterprise and will be non optimal. In both model variants, implications for trade policy are different from those of a standard competitive model, and computations using models calibrated to 2003 Chinese data suggest the differences can be large.
    JEL: F00 F13 P2
    Date: 2006–12

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