nep-cmp New Economics Papers
on Computational Economics
Issue of 2009‒04‒25
seven papers chosen by
Stan Miles
Thompson Rivers University

  1. Modelling major projects: What are the factors that determine net social benefits? By James A Giesecke; John R Madden
  2. Numerical simulation of nonoptimal dynamic equilibrium models By Zhigang Feng; Jianjun Miao; Adrian Peralta-Alva; Manuel S. Santos
  3. Financing Social Security - Simulating Different Welfare State Systems for Germany By Dieckhoener C; Peichl A
  4. Evolutionary Micro-founded Technical Change and The Kaldor-Verdoorn Law: Estimates from an Artificial World By André Lorentz
  5. Green Serves the Dirtiest. On the Interaction between Black and Green Quotas By Christoph Böhringer and Knut Einar Rosendahl
  6. Enforcing International Trade Agreements with Imperfect Private Monitoring: Private Trigger Strategies and a Possible Role for the WTO By Park, Jee-Hyeong
  7. Time Charters with Purchase Options in Shipping: Valuation and Risk Management By Jørgensen, Peter Løchte; De Giovanni, Domenico

  1. By: James A Giesecke; John R Madden
    Abstract: Economic impact statements are part and parcel of project proponents seeking government assistance, infrastructure, or environmental clearance. Such impact assessments are increasingly being conducted with computable general equilibrium (CGE) models. Frequently, however, CGE modellers do not report results in economic welfare terms nor give sufficient attention to the proper simulation requirements for determining net social benefits correctly. In this paper we take the example of a major mining project in the Western Australian region and model it under a variety of stylized scenarios in order to demonstrate the key determinants of an economic welfare measure, gross national disposable income (GNDI). We show that GNDI is sensitive to such factors as: terms of trade effects; profitability; public concessions and infrastructure; cost of foreign financing; and taxation of foreign-owned returns.
    Keywords: major projects, economic impact, regional CGE
    JEL: D61 D58 Q33 Q38
    Date: 2009–04
  2. By: Zhigang Feng; Jianjun Miao; Adrian Peralta-Alva; Manuel S. Santos
    Abstract: In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based on a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.
    Keywords: Econometric models
    Date: 2009
  3. By: Dieckhoener C; Peichl A
    Abstract: In Germany, there is an ongoing debate about how to increase the efficiency of the social security system and especially its financing. The aim of this paper is to simulate different financing systems for Germany. The introduction of a Liberal British or the Southern Greek financing system increases inequality and poverty, as well as labour supply incentives. The introduction of the Social-democratic Danish financing system decreases inequality of incomes, but does not necessarily lead to less poverty. Tax payments are extremely high, whereas social contribution payments are relatively low leading to mixed incentives effects.
    Keywords: EUROMOD, Social Security, Welfare States, comparative analysis
    JEL: C81 D31 H24
    Date: 2009–04–16
  4. By: André Lorentz
    Abstract: This paper proposes to identify the micro-level sources for the dynamic increasing returns occurring at an aggregate level. The paper reverts to a micro model of technological change in-line with the evolutionary literature on industrial dynamics. The data generated through numerical simulations are used to identify the sources of increasing returns as measured by the Kaldor-Verdoorn Law. In this respect we also aim to provide some plausible micro-foundations to this Law. The paper shows that: (i) Dynamic increasing returns appear as an emergent property of the model; (ii) micro-characteristics of technical change, as the amplitude and the frequency of changes, as well as selection mechanisms significantly shape these increasing returns.
    Keywords: Dynamic increasing returns, Kaldor-Verdoorn Law, technical change, evolutionary modelling Length 31 pages
    JEL: B52 L11 O31 O33 O40
    Date: 2009–04
  5. By: Christoph Böhringer and Knut Einar Rosendahl (Statistics Norway)
    Abstract: Tradable black (CO2) and green (renewables) quotas gain in popularity and stringency within climate policies of many OECD countries. The overlapping regulation through both instruments, however, may have important adverse economic implications. Based on stylized theoretical analysis and substantiated with numerical model simulations for the German electricity market, we show that a green quota imposed on top of a black quota does not only induce substantial excess cost but serves the dirtiest power technologies as compared to a black quota regime only.
    Keywords: Emissions Trading; Tradable Green Certificates; Overlapping Regulation
    JEL: D61 H21 H22 Q58
    Date: 2009–04
  6. By: Park, Jee-Hyeong
    Abstract: International trade disputes often involve the WTO as a third party that generates impartial opinions of potential violations when countries receive imperfect and private signals of violations. To identify the role that the WTO plays in enforcing trade agreements, this paper first characterizes what countries can achieve alone in a repeated bilateral trade relationship in which they can secretly raise their protection levels through concealed trade barriers. In particular, countries adopt "private trigger strategies (PTS)" under which each country triggers a punishment phase by imposing an explicit tariff based on its privately observed imperfect signals of such barriers. This paper identifies the condition under which countries can restrain the use of concealed barriers based on simple PTS, where each country imposes its static optimal tariff in all periods under any punishment phase: The sensitivity of private signals rises in response to an increase in concealed protection. Any equilibrium payoff under almost strongly symmetric PTS will be identical to the one under simple PTS, as long as the initial punishment is triggered by a static optimal tariff, justifying the paper's focus on simple PTS. With countries maximizing their expected payoffs under the optimal PTS, they will not push down the cooperative protection level to its minimum attainable level, thus not setting it to the free trade level even when it is attainable. To analyze a possible role of the WTO, this paper considers "third-party trigger strategies (TTS)" under which the WTO allows each country to initiate a punishment phase based on the WTO's judgment (signals) about potential violations. The WTO changes the nature of punishment-triggering signals from private into public, enabling countries to use punishment phases of any length under TTS, which in turn facilitates a better cooperative equilibrium. The optimal TTS will involve an asymmetric and minimum punishment if the probability of a punishment phase being triggered is low enough, but it will entail punishments involving a permanent Nash tariff war if the probability of a punishment being triggered is high enough. A numerical comparison of the optimal TTS and optimal PTS indicates that the contribution of the WTO is likely to be significant when the signals of potential violations are relatively accurate. The WTO enables countries to adopt a more efficient punishment, such as the asymmetric and minimum punishment, which in turn enables countries to be less tolerant of potential violations and attain a higher level of cooperation as a result.
    JEL: F02 F13
    Date: 2009–04
  7. By: Jørgensen, Peter Løchte (Department of Business Studies, Aarhus School of Business); De Giovanni, Domenico (Department of Business Studies, Aarhus School of Business)
    Abstract: The paper studies the valuation and optimal management of Time Charters with Purchase Options (T/C-POPs) which is a specific type of asset lease with embedded options that is common in shipping markets. T/C-POPs are economically significant and sometimes account for more than half of the stock market value of listed shipping companies. The main source of risk in markets for maritime transportation is the freight rate, and we therefore specify a single-factor continuous time model for the dynamic evolution of freight rates which allows us to price a wide variety of freight rate related derivatives including various forms of T/C-POPs using contingent claims valuation techniques. Our model allows for the derivation of closed valuation formulas for some simple freight rate derivatives while the more complex ones are analyzed using numerical (finite difference) procedures. We accompany our theoretical results with illustrative numerical examples as we proceed
    Keywords: ship valuation; options on ships; leasing; lease contracts with options; optimal stopping
    Date: 2008–10–06

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