nep-cmp New Economics Papers
on Computational Economics
Issue of 2009‒04‒13
nine papers chosen by
Stan Miles
Thompson Rivers University

  1. BIMSTEC-Japan Trade Cooperation and Poverty in Asia By John Gilbert
  2. Trade Policy, Poverty, and Income Distribution in CGE Models: An Application to SAFTA By John Gilbert
  3. Merger Simulation in Competition Policy: A Survey By Oliver Budzinski; Isabel Ruhmer
  4. A Mathematical Analysis of the Long-run Behavior of Genetic Algorithms for Social Modeling By Waltman, L.R.; Eck, N.J.P. van
  5. Optimization Heuristics for Determining Internal Rating Grading Scales By Marianna Lyra; Johannes Paha; Sandra Paterlini; Peter Winker
  6. When Smaller Families Look Contagious: A Spatial Look At The French Fertility Decline Using An Agent-Based Simulation Model By Sandra Gonzalez-Bailon; Tommy Murphy
  7. A Stochastic Dynamic Programming Approach to Revenue Management in a Make-to-Stock Production System By Quante, R.; Fleischmann, M.; Meyr, H.
  8. Interactions of Reduced Deforestation and the Carbon Market: The Role of Market Regulations and Future Commitments By Anger, Niels; Dixon, Alistair; Livengood, Erich
  9. Stochastic environmental effects, demographic variation, and economic growth By Azomahou, Theophile; Mishra, Tapas

  1. By: John Gilbert (Department of Economics and Finance, Utah State University)
    Abstract: We review the literature on the relationship between trade policy reform and poverty, and recent approaches in the numerical simulation literature to estimating the impact of alternative trade reform scenarios. The GTAP model is then used to simulate the effect of the trade cooperation among the economies of BIMSTEC and Japan on aggregate welfare and poverty in the BIMSTEC member economies. As a case study, the results of the global model simulations are then used as an input to a more detailed model of simulation model of India, which identifies nine household groups classifed by their source of income and consumption pattern. Detailed estimates of the eect of trade reform at the household level are presented for India.
    Keywords: Trade reform, CGE, regional trading agreements, poverty, India, BIMSTEC
    JEL: F13 F17 C68 O53
    Date: 2008–12–19
  2. By: John Gilbert (Department of Economics and Finance, Utah State University)
    Abstract: We describe a new CGE model of South Asia, and its application to understanding the socio-economic aspects of SAFTA. The model currently covers India, Sri Lanka and Bangladesh, and the rest of South Asia. It is being expanded to include Nepal and Pakistan. The model incorporates modifications to the household structure to capture implications of reform for intra-household income changes.
    Keywords: SAFTA, CGE, Poverty
    JEL: F13 F17 C68 O53
    Date: 2008–12–19
  3. By: Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Isabel Ruhmer (CDSE,University of Mannheim, Germany)
    Abstract: Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its ‘technical’ potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects. The authors thank Ulrich Schwalbe, Wolfgang Kerber, Arndt Christiansen and Niels Vestergaard for valuable comments on earlier versions of the paper, the participants of the 30th Hohenheimer Oberseminar (Nuernberg, April 2008) for helpful discussion, and Barbara Güldenring for valuable editorial assistance.
    Keywords: Merger simulation, merger control, antitrust, oligopoly theory, auction models, mergers & acquisitions
    JEL: L40 C15 K21
    Date: 2009–01
  4. By: Waltman, L.R.; Eck, N.J.P. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We present a mathematical analysis of the long-run behavior of genetic algorithms that are used for modeling social phenomena. The analysis relies on commonly used mathematical techniques in evolutionary game theory. Assuming a positive but infinitely small mutation rate, we derive results that can be used to calculate the exact long-run behavior of a genetic algorithm. Using these results, the need to rely on computer simulations can be avoided. We also show that if the mutation rate is infinitely small the crossover rate has no effect on the long-run behavior of a genetic algorithm. To demonstrate the usefulness of our mathematical analysis, we replicate a well-known study by Axelrod in which a genetic algorithm is used to model the evolution of strategies in iterated prisoner’s dilemmas. The theoretically predicted long-run behavior of the genetic algorithm turns out to be in perfect agreement with the long-run behavior observed in computer simulations. Also, in line with our theoretically informed expectations, computer simulations indicate that the crossover rate has virtually no long-run effect. Some general new insights into the behavior of genetic algorithms in the prisoner’s dilemma context are provided as well.
    Keywords: genetic algorithm;long-run behavior;social modeling;economics;evolutionary game theory
    Date: 2009–03–09
  5. By: Marianna Lyra; Johannes Paha; Sandra Paterlini; Peter Winker
    Abstract: Basel II imposes regulatory capital on banks related to the de- fault risk of their credit portfolio. Banks using an internal rating approach compute the regulatory capital from pooled probabilities of default. These pooled probabilities can be calculated by clustering credit borrowers into di®erent buckets and computing the mean PD for each bucket. The clustering problem can become very complex when Basel II regulations and real-world constraints are taken into account. Search heuristics have already proven remarkable performance in tackling this problem. A Threshold Accepting algorithm is proposed, which exploits the inherent discrete nature of the clustering problem. This algorithm is found to outperform alternative methodologies already proposed in the literature, such as standard k-means and Di®erential Evolution. Besides considering several clustering objectives for a given number of buckets, we extend the analysis further by introducing new methods to determine the optimal number of buckets in which to cluster banks' clients.
    Keywords: : credit risk; probability of default; clustering; Threshold Accepting; Differential Evolution
    JEL: C61
    Date: 2009–03
  6. By: Sandra Gonzalez-Bailon (Nuffield College and Department of Sociology, University of Oxford); Tommy Murphy (IGIER and Centro Dondena, Universita Bocconi)
    Abstract: Despite some disagreements about specific timing, it is now widely accepted that France was the first European country to experience a systematic decline in fertility, a decline that took place in a very distinctive geographical pattern. Whereas two areas of low birth rates (the Seine valley and the Aquitaine region) kept spreading, two ‘islands’ of high fertility (Bretagne and the Massif Central) shrank until they more or less disappeared in the early 1900s. In an attempt to provide a sensible explanation of this pattern, we build an agent-based simulation model which incorporates both historical data on population characteristics and spatial information on the geography of France, and allows us to study the role of social influence in fertility decisions. We assess how different behavioural assumptions and network topologies cause variations in diffusion patterns, using quantitative data on the Ecclesiastical Oath of 1791 to proxy for the impact the Revolution. Analysis of several simulations shows that a combination of both endogenous and exogenous factors help to explain the way in which the diffusion took place and suggests some of the mechanisms through which this was materialised.
    Keywords: Economic history, demographic history (Europe pre-1913), France, demographic economics, fertility, simulation models (agent-based), diffusion.
    JEL: N33 J13 C15
    Date: 2008–09–02
  7. By: Quante, R.; Fleischmann, M.; Meyr, H. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In this paper, we consider a make-to-stock production system with known exogenous replenishments and multiple customer classes. The objective is to maximize profit over the planning horizon by deciding whether to accept or reject a given order, in anticipation of more profitable future orders. What distinguishes this setup from classical airline revenue management problems is the explicit consideration of past and future replenishments and the integration of inventory holding and backlogging costs. If stock is on-hand, orders can be fulfilled immediately, backlogged or rejected. In shortage situations, orders can be either rejected or backlogged to be fulfilled from future arriving supply. The described decision problem occurs in many practical settings, notably in make-to-stock production systems, in which production planning is performed on a mid-term level, based on aggregated demand forecasts. In the short term, acceptance decisions about incoming orders are then made according to stock on-hand and scheduled production quantities. We model this problem as a stochastic dynamic program and characterize its optimal policy. It turns out that the optimal fulfillment policy has a relatively simple structure and is easy to implement. We evaluate this policy numerically and find that it systematically outperforms common current fulfillment policies, such as first-come-first-served and deterministic optimization.
    Keywords: make-to-stock production;advanced planning systems;order fulfillment;revenue management
    Date: 2009–03–12
  8. By: Anger, Niels; Dixon, Alistair; Livengood, Erich
    Abstract: Reducing emissions from deforestation and degradation (REDD) has been proposed as a potentially inexpensive and plentiful source of emission abatement to supplement other longterm climate policies. However, critics doubt that REDD credits are environmentally equivalent to domestic emission reductions, and suggest an excess supply may disrupt carbon markets. In this context, we investigate the economic implications of emissions market regulations and future emissions reduction commitments, as well as uncertainties in REDD credit supply. Numerical simulations with a multi-country equilibrium model of the global emissions market show unrestricted exchange of REDD units reduces the international carbon price by half and cuts Annex I compliance costs by roughly one third. Restricting supply or demand of REDD credits reduces price impacts, but comes at the cost of economic efficiency. Alternatively, Annex I reduction commitments could be increased by almost two thirds at constant carbon prices. While REDD provides large economic benefits for tropical rainforest regions, any REDD policy scenario also reduces wealth transfers to traditional CDM host countries through increased competition on the supply-side of the carbon market.
    Keywords: Climate Change, Kyoto Protocol, Emissions Trading, Deforestation, REDD
    JEL: C60 D61 Q23 Q58
    Date: 2009
  9. By: Azomahou, Theophile (UNU-MERIT); Mishra, Tapas (School of Business and Economics, University of Wales Swansea)
    Abstract: We consider a stochastic environment to study interactions among pollution growth, demographic changes, and economic growth. Drawing on the empirical findings of slow convergence patterns of pollution shocks (viz., with a long-memory), we build an analytical framework where stochastic environmental feedback effects on population changes are reflected upon aggregate economic growth. Long-memory in economic growth, in our model, is shown to arise due to the inherent stochasticity in environmental and demographic system. Empirical results for a set of developed and developing countries generally support our conjecture. Simulation experiment is carried out to lend additional support to this claim.
    Keywords: Environmental Quality, Long-memory, Demographic Dynamics, Economic Growth
    JEL: C13 J11 O47
    Date: 2009

This nep-cmp issue is ©2009 by Stan Miles. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.