New Economics Papers
on Computational Economics
Issue of 2008‒08‒31
nine papers chosen by

  1. The benefits of linking CGE and Microsimulation Models - Evidence from a Flat Tax analysis By Peichl, Andreas
  2. A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy By Jaafar , Abdul Hamid; Al-Amin, Abul Quasem; Siwar, Chamhuri
  3. An approximate consumption function By Mario Padula
  4. A Decomposition Algorithm for N-Player Games By Govindan, Srihari; Wilson, Robert B.
  5. Stochastic Optimization in Econometric Models – A Comparison of GA, SA and RSG By Agapie, Adriana
  6. Beyond Plain Vanilla: Modeling Joint Product Assortment and Pricing Decisions By Draganska, Michaela; Seim, Katja; Mazzeo, Michael
  7. How Much to Spend on Flexibility? Determining the Value of Information System Flexibility By Schober, Franz; Gebauer, Judith
  8. Deciding on Monetary Integration: An Operational Approach By Powell, Andrew; Sturzenegger, Federico
  9. Heterogeneous Labour Markets in a Microsimulation-AGE Model: Application to Welfare Reform in Germany By Boeters, Stefan; Feil, Michael

  1. By: Peichl, Andreas
    Abstract: Mircrosimulation models (MSM) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. The combination of these two model types allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation and to demonstrate the benefits of linking both model types modelling flat tax reform proposals for Germany. Taking the general equilibrium effects into account has important implications for the evaluation of a tax reform. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off in the long-run while simultaneously increasing the tax revenue. However, this result does not hold for a flat tax combining a personal income flat tax with a corporate cash flow flat tax, even when allowing for an ex-post loss in revenue.
    Keywords: Microsimulation, CGE, linked micro macro models, flat tax
    JEL: D58 H2 J22
    Date: 2008
  2. By: Jaafar , Abdul Hamid; Al-Amin, Abul Quasem; Siwar, Chamhuri
    Abstract: Environmental pollution is an emerging issue in many developing countries and its mitigation is increasingly being integrated into national development policies. One approach to mitigate the problem is by implement pollution control policies in the form of pollution tax or clean technology incentives. Empirical studies for developed countries reveal that imposition of an carbon tax would decrease CO2 emissions significantly and do not dramatically reduce economic growth. However, the same result may not apply for small-open developing countries such as Malaysia. The objective of this study is to quantify the impact of pollution tax on the Malaysian economy under the backdrop of trade liberalization. To examine the economic impact and effectiveness of carbon tax, a single-country, static Computable General Equilibrium model for Malaysia is constructed. The model is extended to incorporate output-specific carbon tax elements. Three simulations were carried out using a Malaysian 2000 Social Accounting Matrix. The first simulation examines the impact of halving the baseline tariff and export duty while the second solely focused on the impact of output-specific carbon tax. The third simulation combines both former scenarios. The model results indicate that the Malaysian economy is not sensitive to further liberalization. The reason could be attributed to the fact that Malaysian export duty is already low. Additionally, simulation results also indicate that while imposition of carbon tax reduces carbon emission, it also results in lower GDP and trade.
    Keywords: Trade; Air Emission; Environmental General Equilibrium; Malaysian Economy
    JEL: F00 C68 F1
    Date: 2008–08–15
  3. By: Mario Padula (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper proposes an approximation to the consumption function in the buffer-stock model. The approximation is based on the analytic properties of the consumption function in the buffer-stock model. In such model, the consumption function is increasing and concave and its derivative is bounded from above and below. We compare the approximation with the consumption function obtained using the endogenous grid point algorithm and show that using the former or the latter for estimating the Euler equation leads to very similar results.
    Keywords: Buffer stock model of saving, Computational methods, Approximation methods and estimation
    JEL: C63 D12 E21
    Date: 2008
  4. By: Govindan, Srihari (U of Iowa); Wilson, Robert B. (Stanford U)
    Abstract: An N-player game can be approximated by adding a coordinator who interacts bilaterally with each player. The coordinator proposes strategies to the players, and his payoff is maximized when each player's optimal reply agrees with his proposal. When the feasible set of proposals is finite, a solution of an associated linear complementarity problem yields an approximate equilibrium of the original game. Computational efficiency is improved by using the vertices of Kuhn's triangulation of the players’ strategy space for the coordinator's pure strategies. Computational experience is reported.
    Date: 2007–08
  5. By: Agapie, Adriana
    Abstract: This paper shows that, in case of an econometric model with a high sensitivity to data, using stochastic optimization algorithms is better than using classical gradient techniques. In addition, we showed that the Repetitive Stochastic Guesstimation (RSG) algorithm –invented by Charemza-is closer to Simulated Annealing (SA) than to Genetic Algorithms (GAs), so we produced hybrids between RSG and SA to study their joint behavior. The evaluation of all algorithms involved was performed on a short form of the Romanian macro model, derived from Dobrescu (1996). The subject of optimization was the model’s solution, as function of the initial values (in the first stage) and of the objective functions (in the second stage). We proved that a priori information help “elitist “ algorithms (like RSG and SA) to obtain best results; on the other hand, when one has equal believe concerning the choice among different objective functions, GA gives a straight answer. Analyzing the average related bias of the model’s solution proved the efficiency of the stochastic optimization methods presented.
    Keywords: underground economy, Laffer curve, informal activity, fiscal policy, transitionmacroeconomic model, stochastic optimization, evolutionary algorithms, Repetitive Stochastic Guesstimation
    JEL: E17 C15 C65
    Date: 2008–08
  6. By: Draganska, Michaela (Stanford U); Seim, Katja (Northwestern U); Mazzeo, Michael (U of Pennsylvania)
    Abstract: In this paper, we take a first step toward exploring empirically the product assortment strategies of oligopolistic firms. Our starting point is a discrete- choice demand model for differentiated products. We incorporate the demand model into an equilibrium supply model, in which firms compete by first choosing which products to offer and then by setting prices. We show how modeling joint product assortment and pricing decisions enriches standard product choice models by allowing insights into how demand characteristics affect firms' product offerings in a competitive environment. We furthermore demonstrate that incorporating endogenous product choice into demand models is essential for policy simulations (e.g., mergers) as it entails at times dramatically different welfare assessments than the common assumption that product assortments are exogenous.
    Date: 2007–10
  7. By: Schober, Franz (Albert-Ludwigs-University Freiburg); Gebauer, Judith (U of Illinois at Urbana-Champaign)
    Abstract: In the current paper, we outline several approaches to determine the value of information system (IS) flexibility, defined as the extent to which an IS can be modified and upgraded following its initial implementation. Building on an earlier theoretical model by GEBAUER and SCHOBER (2006), we calculate the value of IS flexibility for a numerical example with deterministic and stochastic model parameters. We compare the results of decision tree analysis and real option analysis and present the results of a simulation experiment. Besides practical implications, our results contribute to earlier research on IS flexibility as they highlight the need to include stochastic elements in the evaluation of IS flexibility.
    Date: 2008–04
  8. By: Powell, Andrew (Inter-American Development Bank and Universidad Torcuato Di Tella); Sturzenegger, Federico (Harvard U and Universidad Torcuato Di Tella)
    Abstract: We develop a simple, n-country model to consider the costs and benefits of joining a monetary union. Our factor-OCA framework encompasses different approaches and allows us to consider the optimal composition of a monetary union for all the potential members. We illustrate the model in practice with various simulations and we develop two empirical applications based on expanding EMU and on whether there would be a benefit to deepening Nafta to be a monetary union. While some commentators have called for a one-world currency, we find full monetary integration has costs for some countries and benefits for others, perhaps explaining why this remains a controversial issue.
    Date: 2007–09
  9. By: Boeters, Stefan; Feil, Michael
    Abstract: Labour market reforms that are designed to stimulate labour supply at the lower end of the wage distribution can never be precisely restricted to affect only the target group. Spillovers to and feedback from other segments of the labour market are unavoidable and may counteract the direct effects of the reform. An adequate representation of heterogeneous labour markets becomes therefore an important issue for the assessment of reforms. We analyse the possible interactions between labour market segments in a combined, consistent microsimulation-AGE model with a flexible representation of substitution possibilities and different wage-forming regimes. We look at a stylised reform and find labour-demand cross-price elasticities between the low and medium skilled to be the main drivers of the results. Interaction with the high-skilled segment is less pronounced.
    Keywords: Applied general equilibrium model, microsimulation, discrete working time choice, heterogeneous labour markets, labour market reform
    JEL: D58 J22 J51
    Date: 2008

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