New Economics Papers
on Computational Economics
Issue of 2008‒11‒18
seven papers chosen by

  1. Follow the Leader: Simulations on a Dynamic Social Network By David Goldbaum
  2. On the Numerical Stability of Simulation Methods for SDES By Eckhard Platen; Lei Shi
  3. An Economy-wide Analysis of Impacts on Taiwan of Reducing Tariff Escalation on Agriculture-Related Products in WTO Doha Round Negotiations By Lee, Huey-Lin; Chang, Ching-Cheng; Weng, Yung-Ho; Hsu, Sheng-Ming; Hsu, Shih-Hsun
  4. Reducing fuel subsidy or taxing carbon? Comparing the two instruments from the economy, environment, and equity perspective for Indonesia By Arief Anshory Yusuf; Arief Ramayandi
  5. An Agent-Based Model of Multifunctional Agricultural Landscape Using Genetic Algorithms By Soman, Sethuram; Misgna, Girmay; Kraft, Steven; Lant, Chris; Beaulieu, Jeff
  6. Evaluating Government’s Policies on Promoting Smart Metering in Retail Electricity Markets via Agent Based Simulation By Zhang, T.; Nuttall, W.J.
  7. Agricultural Trade Policy Modelling: Insights from a Meta-Analysis of Doha Development Agenda Outcomes By Hess, Sebastian; von Cramon-Taubadel, Stephan

  1. By: David Goldbaum (School of Finance and Economics, University of Technology, Sydney)
    Abstract: An agent based model is developed in which a social hierarchy of leaders and followers emerges from a uniform or random social network. The formation of the social structure is driven by the desire to be an early adopter of a subsequently popular trend. The environment is related to a majority game, but introduces the importance of the timing of adoption. The proposed environment is relevant to a number of settings in which leadership and timing of decisions are important or being perceived as a trend setter is rewarded. The leadership position can be selfreinforcing. For a professional critic, for example, a cult-of-personality can dictate popular tastes, such as in art, food, and wine markets. A social hierarchy can also apply to the introduction of new products or ideas including academic research and financial market analysts.
    Keywords: dynamic network; social interaction; consumer choice
    Date: 2008–10–01
  2. By: Eckhard Platen (School of Finance and Economics, University of Technology, Sydney); Lei Shi (School of Finance and Economics, University of Technology, Sydney)
    Abstract: When simulating discrete time approximations of solutions of stochastic differential equations (SDEs), numerical stability is clearly more important than numerical efficiency or some higher order of convergence. Discrete time approximations of solutions of SDEs are widely used in simulations in finance and other areas of application. The stability criterion presented is designed to handle both scenario simulation and Monte Carlo simulation, that is, strong and weak simulation methods. The symmetric predictor-corrector Euler method is shown to have the potential to overcome some of the numerical instabilities that may be experienced when using the explicit Euler method. This is of particular importance in finance, where martingale dynamics arise for solutions of SDEs and diffusion coefficients are often of multiplicative type. Stability regions for a range of schemes are visualized and discussed. For Monte Carlo simulation it turns out that schemes, which have implicitness in both the drift and the diffusion terms, exhibit the largest stability regions. It will be shown that refining the time step size in a Monte Carlo simulation can lead to numerical instabilities.
    Keywords: stochastic differential equations; scenario simulation; Monte Carlo simulation; numerical stability; predictor-corrector methods; implicit methods
    Date: 2008–10–01
  3. By: Lee, Huey-Lin; Chang, Ching-Cheng; Weng, Yung-Ho; Hsu, Sheng-Ming; Hsu, Shih-Hsun
    Abstract: Tariff escalation becomes one of the major issues in the new Doha Round negotiation because it is viewed as a stumbling block to the industrialization development for the developing countries. When tariffs on products escalate with the stage of processing, the effective rate of protection, or the tariff expressed as fractions of value-added after deducting intermediate inputs from product value, also increases. Thus, tariff escalation potentially signals high rates of protection for value-added or processed products, and can inhibit international trade in these goods. The major purpose of this study is to examine the degrees of tariff escalations in Taiwan¡¦s agriculture-related commodities and the economic consequences to reduce them. A simplified theoretical model is first established to illustrate the structural impacts and welfare implications of reducing tariff escalation. Then a computable general equilibrium (CGE) model of Taiwan is applied to simulate the economy-wide impacts of three alternative reduction proposals.. The model distinguishes 160 sectors, 6 types of labor, 8 types of margins and 160 commodities compiled from the Input-Output tables of 2004. Simulation results indicate that if welfare improvement is the major policy concern, then Taiwan should favor the reduction because it improves the overall welfare of Taiwan. However, if farmers¡¦ welfare is the major policy concern, then Taiwan should act against the reduction. In case the consensus to reduce tariff escalations has been determined, then the second-best choice would be to offer upstream industries relatively smaller tariff reduction rates than the downstream industries.
    Keywords: tariff escalation, tariff wedge, computable general equilibrium model, International Relations/Trade, F13, C68, Q17,
    Date: 2008
  4. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University); Arief Ramayandi (Center for Economics and Development Studies Dept. of Economics, Padjadjaran University)
    Abstract: Reducing fuel subsidy and taxing carbon have a tendency toward reducing energy consumption and carbon emissions. However, both instruments may have differing impacts in their magnitudes of the emissions reduction and on the economy as a whole. Using INDONESIA-E3 (Economy-Equity-Environment) model, a computable general equilibrium (CGE) model which includes carbon emissions, carbon taxation, as well as, strong feature in distributional analysis, this paper compares and contrast the two instruments to find which policy is better in improving the three pillars of sustainable development: economy, equity, and the environment. The result suggests that given the same amount of government budget saving, carbon tax is relatively superior to using a fuel subsidy reduction instrument, because it can accelerate the decline in CO2 emissions with a lower cost on the economy in terms of GDP reduction with more favorable distributional effect. This has not taken into account the economic incentives it creates for the economy to be less reliant on carbon-intensive energy.
    Keywords: Carbon Tax, Fuel Subsidyc Climate Change, CGE, Indonesia
    JEL: D30 D58 Q40 Q48 Q54 Q56 Q58
    Date: 2008–10
  5. By: Soman, Sethuram; Misgna, Girmay; Kraft, Steven; Lant, Chris; Beaulieu, Jeff
    Abstract: Landowner characteristics influence his/her willingness to change landuse practices to provide more or less environmental benefits. However, most studies of agricultural/environmental polices identify landowners as homogenous. And, the primary cause of failure of many environmental and other polices is the lack of knowledge on how humans may respond to polices based on changes in their behavior (Stern, 1993). From socioeconomic theory and empirical research, landowners can be identified as individuals who make agricultural landuse decisions independently based on their objectives. Identifying possible classes of landowners, assessing how each would potentially respond to policy alternatives, and the resulting pattern of land uses in a watershed or a riparian corridor would be very useful to policy makers as they evaluated alternatives. Agricultural landscapes are important producers of ecosystem services. The mix of ecosystem services and commodity outputs of an agricultural landscape depends on the spatial pattern of land uses emerging from individual land use decisions. However, many empirical studies show that the production of ecosystem services from agricultural landscapes is declining. This is consistent with research conducted over the last few decades showing there is a narrow range of social circumstances under which landowners are willing to make investments in the present to achieve public benefits in the future through investing in natural capital resulting in public goods which are frequently produced as ecosystem services. In this study an agent-based model within a watershed planning context is used to analyze the tradeoffs involved in producing a number of ecosystem services and agricultural commodities given price and policy scenarios while assuming three different types of agents in terms of their goals. The agents represent landowners who have been divided into a number of different groups based on their goals and the size of their farm operations. The multi-agent-based model is developed using a heuristic search and optimization technique called genetic algorithm (GA) (Holland), which belongs to a broader class of evolutionary algorithms. GAs exhibit three properties (1) they start with a population of solution, (2) they explore the solution space through recombination and mutation and (3) they evaluate individual solutions based on their appropriate fitness value(s), for example given profit maximizing agents this would be gross margin. A GA is a heuristic stochastic search and optimization method, which works by mimicking the evolutionary principles and chromosomal processing in natural genetics. The three economic agents that are modeled are based on variations in their objective functions and constraints. This study will help in identifying the tradeoffs associated with various agents in the provision of ecosystem services and agricultural commodities. The agent model developed here will help policy and decision maker identify the various agents within the watershed and assess various policy options based on that information. The study will also help to understand the interaction and feedback between the agents and their environment associated with various policy initiatives. The results of the study indicate that the agent model correctly predicts the actual landuse landcover map by 75 percent.
    Keywords: Multifunctional agriculture, Agent based modeling, Genetic Algorithm, Environmental Economics and Policy, Land Economics/Use,
    Date: 2008
  6. By: Zhang, T.; Nuttall, W.J.
    Abstract: In this paper, we develop an agent-based model of a market game in order to evaluate the effectiveness of the UK government’s 2008-2010 policy on promoting smart metering. We also consider possible supplementary strategies. With the model, we test the effectiveness of four possible strategy options and suggest their policy implications. The context of the paper is a practical application of agent-based simulation to the retail electricity market in Britain. The contribution of the research are both in the areas of policy making for electricity markets and in the methodological use of agent-based simulation for studying social complex systems involving human behaviour.
    Keywords: agent-based simulation, smart metering technology, the Theory of Planned Behaviour, retail electricity market
    JEL: C63 C73 D78 O33
    Date: 2008–08
  7. By: Hess, Sebastian; von Cramon-Taubadel, Stephan
    Abstract: In a meta-analysis of trade policy models, Hess and von Cramon-Taubadel (2008) use over 5800 simulated welfare effects from 110 studies of potential Doha Development Agenda outcomes to identify characteristics of models, data and policy experiments that influence simulation results. This meta-analysis, which is recapitulated here, produces plausible results and explains a significant proportion of the variation in simulated welfare effects. However, due to insufficient documentation and the complexity of the general and partial equilibrium models in the literature sample, many explanatory variables employed in this analysis are binary. This precludes more detailed analysis of their impacts across models. Therefore, a partial equilibrium model and a single country CGE for Canada are employed to generate synthetic meta-data. Simulation scenarios are based on random combinations of base data, elasticities and tariff changes selected from plausible ranges obtained from the literature sample. The synthetic meta-data has the advantage that the values of explanatory variables are measured exactly. This makes it possible to explore more complex issues of functional form and interaction between variables in the meta-analysis. The results indicate for both models that first- and second-order polynomials provide sufficient approximations of the model response. Especially in the CGE model, interaction terms between elasticities and policy variables are important. We conclude that meta-analysis can provide insights into the behaviour of trade policy models beyond what is possible with conventional sensitivity analysis and qualitative reviews.
    Keywords: trade, policy model, Doha, meta-analysis, Agricultural and Food Policy, Demand and Price Analysis, International Development, International Relations/Trade,
    Date: 2008–05

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