New Economics Papers
on Computational Economics
Issue of 2010‒01‒23
six papers chosen by

  1. In-work Transfers in Good Times and Bad - Simulations for Ireland By Olivier Bargain; Karina Doorley
  2. Philippine agricultural and food policies: Implications for poverty and income distribution By Cororaton, Caesar B.; Corong, Erwin
  3. Economic Crisis and Global Supply Chains By Agnes Benassy-Quere; Yvan Decreux; Lionel Fontagne; David Khoudour-Casteras
  4. At the frontier of practical political economy : operationalizing an agent-based stakeholder model in the World Bank's East Asia and Pacific Region By Nunberg, Barbara; Barma, Naazneen; Abdollahian, Mark; Green, Amanda; Perlman, Deborah
  5. Evaluating Health Care Externality Costs Generated by Risky Consumption Goods By Michael A. Cohen; Marina-Selini Katsaiti
  6. A Hybrid Intelligent Early Warning System for Predicting Economic Crises: The Case of China By Su, Dongwei; He, Xingxing

  1. By: Olivier Bargain (University College Dublin); Karina Doorley (University College Dublin)
    Abstract: In-work transfers are often seen as a good trade-off between redistribution and efficiency, as they alleviate poverty among low-wage households while increasing financial incentives to work. The present study explores the consequences of ex- tending these transfers in Ireland, where support for low-wage households has been of limited scope. The employment and poverty effects of alternative policies are an- alyzed thanks to counterfactual simulations built using a micro-simulation model, the Living in Ireland Survey 2001 and labour supply estimations. Firstly, we study the effect of recent extensions of the existing scheme, the Family Income Supplement (FIS), and of its replacement by the refundable tax credit in force in the UK. Sec- ondly, little is known about the impact of macro-level changes on the distribution of resources at the household level, which is particularly relevant in a country deeply affected by the current economic downturn. We suggest a preliminary analysis of the capacity of alternative in-work transfer scenarios to cushion the negative impact of earnings losses and cuts in the minimum wage.
    Keywords: Microsimulation; Working Poor; Welfare; Labour supply; Take-up
    Date: 2009–12–08
  2. By: Cororaton, Caesar B.; Corong, Erwin
    Abstract: The Philippines has undergone a series of trade reforms since the mid-1980s that have reduced protection on nonagricultural goods. However, protection on key food items is still in effect, and this has led to high domestic food prices. Such high prices have a considerable negative effect on poverty because more than 60 percent of the consumption of poor Filipino households is for food. The special product arguments of the World Trade Organization increase the pressure to maintain the existing high levels of food protection in the country. Special products treatment provides developing countries with the flexibility to implement tariff reduction programs over an extended period for certain self-designated products. These special product discussions are based on food security, livelihood, and rural development arguments. This research report assesses the poverty and income distribution implications of trade reform that is focused on agriculture and major food items (rice, corn, sugar, beef, chicken, pork, processed meat products, fruits and vegetables, and processed fruits) in the Philippines. A dynamic-recursive computable general equilibrium model calibrated to the social accounting matrix for the Philippine economy for the year 2000 and a microsimulation model that uses the 2000 Family Income and Expenditure Survey are used to analyze possible policy shifts. The simulation results indicate that trade reform in agriculture and major food items will have favorable effects on factor prices and bring about a significant reduction in consumer prices. Real household income will increase while poverty and income inequality decline. These findings therefore imply that maintaining existing trade protections on agricultureand major food items—which drive food prices up—will not solve the problem of poverty and income inequality in the Philippines. In the year 2000 the incidence of poverty in the Philippines was 34 percent. In 2003 it declined to 30.4 percent. The incidence of poverty in rural areas is higher than that in urban areas: 48.8 percent and 18.6 percent in 2000, respectively. Over the past two decades, significant structural changes have taken place in the Philippine economy. The share of agriculture in the total gross domestic product has declined. The country has switched from being a net exporter to a net importer of agricultural products and food items. The widening trade gap in agriculture and food has made the Philippines vulnerable to fluctuations in the world market. For example, the international rice crisis in 2008 has adversely affected the domestic market for rice in the Philippines. The deterioration in the net trade position of the country in food has largely been caused by the high growth in domestic food demand relative to production. Domestic food production lags behind demand because of declining productivity. There is increasing demand for food items with higher income elasticities, and there is also increasing pressure from high population growth. To address this growing trade gap in agriculture and food, the government has adopted a strategy to improve rice productivity. This is a step in the right direction: based on our rice productivity simulation results, higher rice productivity will increase domestic production and reduce imports of rice. Most importantly it will reduce consumer prices. Most of the benefits of improved rice productivity would go to the households in the first decile of the population, since rice has the largest share in their consumption basket relative to the rest of the household groups. There is a reduction in poverty incidence and income inequality. However, implementation of the Philippine government’s rice productivity program is costly, inefficient, and ineffective. In 2001 the government introduced a new technology, hybrid rice. Its adoption was aggressively pursued by the government through the Hybrid Rice Commercialization Program (HRCP). Under the HRCP the production of hybrid rice seeds is supported by the government through (1) procurement of seeds at a guaranteed price, (2) distribution of the procured seeds to participating farmers at half the procurement price, and (3) payment of additional money to participating farmers to help defray their fertilizer input costs. The government has devoted significant resources, through a system of subsidies, to supporting the HRCP. However, the results are not encouraging. The adoption rate of hybrid rice is very low. There is a high dropout rate among participating farmers, because hybrid rice seeds are so expensive and farmers have to purchase them every planting season rather than reusing them (which would result in drastically decreased yields). The massive government subsidies have distorted the ability of farmers to make an informed choice between hybrid and inbred rice varieties. Thus instead of supporting the HRCP the government should spend its limited resources on research and development that focuses on improving the yield of inbred rice. Enhancing an inbred-based system that is adapted to farmers’ familiar practice of saving, reusing, and exchanging seeds would be a more responsive approach to improving productivity than promoting such costly technologies as hybrid rice, which has not yet achieved commercially viable levels.
    Keywords: Food prices, Trade reform, Agricultural policies, Computable general equilibrium (CGE) modeling, Social accounting matrix, Microsimulation model, food policies, Income distribution, Poverty reduction,
    Date: 2009
  3. By: Agnes Benassy-Quere; Yvan Decreux; Lionel Fontagne; David Khoudour-Casteras
    Abstract: Much attention has been paid to the sharp fall in world trade associated with the economic crisis during the last quarter of 2008 and the first quarter of 2009. Alarming forecasts have been published for the whole year of 2009 and several explanations have been offered. In particular, beyond the credit crunch and the global drop in demand, it has been argued that, due to globalisation and the fragmentation of supply chains, world trade will inevitably overshoot the shock in world GDP. We contest this view using both simple accounting calculations and a simulation of the multi-region, multi-sector Computable General Equilibrium (CGE) model, which explicitly models input-output relations within and between sectors. Using the CGE MIRAGE, we ask whether the most recent forecasts of GDP change, together with a twist in the composition of demand (to the detriment of capital goods), a halt in the trend towards the reduction in trade costs and a collapse in the oil price can replicate a very similar multiplier effect on world trade to that currently being experienced. Firstly, we find that, when trade flows are deflated by the price of the world GDP, the order of magnitude for trade decline in 2009 is 8.9 percent in our exercise. However, when trade flows are deflated by the sector-specific trade prices computed by the model, the drop in world trade is much more limited (-2.4 percent). Hence a large part of the fall in trade predicted by the model comes from a relative price effect. Secondly, while this fall is still more than the –1.3% drop in world GDP forecast by the IMF in April 2009, even this magnification effect disappears when GDPs are aggregated using current exchange rates, which is the appropriate reference, rather than PPP weights. Thirdly, while, our paper does not support the hypothesis of a systematic over-shooting of trade due to globalisation and the fragmentation of supply chains, it seems likely that additional factors such as the credit shortage must have played a role in the short run to explain the sharp fall in world trade.
    Keywords: International trade; global crisis; global supply chains; CGE modelling
    JEL: F17 F43
    Date: 2009–07
  4. By: Nunberg, Barbara; Barma, Naazneen; Abdollahian, Mark; Green, Amanda; Perlman, Deborah
    Abstract: Reform programs sometimes falter because they are politically infeasible. Policy change inevitably creates winners and losers, so those with vested interests strike bargains to determine how far and how quickly reform should advance. Understanding these micro political dynamics of reform can mean the difference between a successful intervention that gains political traction and a well-intentioned gambit that falls short of achieving its developmental objectives. Donors like the World Bank have been searching for ways to take these political factors more fully into account as they design programs to support country reforms. This initiative sought to introduce a rigorous and operationally usable political analysis tool that could be systematically integrated into the World Bank's country programming cycle. The East Asia and Pacific region carried out a multi-country pilot of the Agent-Based Stakeholder Model. This innovative analytical approach entails a quantitative simulation of the complex bargaining dynamics surrounding reform. The model anticipates stakeholder coalition formation and gauges the political feasibility of alternative proposed interventions. This paper provides a review of the Agent-Based Stakeholder Model pilot experience, exploring what sets this model apart from more traditional approaches, how it works, and how it fits into the Bank's operational cycle at various stages. An overview of the Mongolia, Philippines, and Timor-Leste country cases is followed by an examination of policy-related insights and lessons learned. Finally, the paper builds on this East Asian pilot experience, offering ideas on a potential way forward for organizations like the World Bank to deepen and extend their political analysis capabilities. The paper argues that the Agent-Based Stakeholder Model, utilized thoughtfully, offers a powerful addition to the practical political economy toolkit.
    Keywords: Banks&Banking Reform,Public Sector Corruption&Anticorruption Measures,Environmental Economics&Policies,Social Accountability,Corporate Law
    Date: 2010–01–01
  5. By: Michael A. Cohen (University of Connecticut); Marina-Selini Katsaiti (University of Connecticut and University of Athens)
    Abstract: We present an overlapping-generations (OLG) macroeconomic model that applies a behavioral interpretation of preferences for goods that generate health risks. In this paper proneness to poor health is viewed as a cognitive miscalculation by economic agents between their expected health state over various consumption bundles and the actual health care they require for their health outcome. To model this the paper borrows insight from prospect theory and applies the reference-dependent preference framework to the specication of out utility model. In our model of the economy individual preferences are decomposed into intrinsic consumption utility and gain-loss utility associated with the miscalculation. Agents in the economy are stratied in their health states as well as their expected health care consumption according to some probability measure over the population. Heterogeneity introduced in this way generates consumers of varied proneness to risk associated with consumption of unhealthy goods because individuals have various marginal valuations of their miscalculation. In such a population, when all agents pay the same insurance premium, health-conscious agents shoulder the health care costs of their less health-conscious counterparts and the less health-conscious are engaged in less healthy consumption than they would if they paid actuarially fair premia. We demonstrate these eects in simulations by comparing the risk pooling equilibria to the actuarially fair pricing equilibria. This paper introduces the mathematical programming equilibrium constraint (MPEC) computational approach to compute model equilibria; we believe this approach is new to heterogeneous agent OLG model simulation.
    Keywords: Risky Consumption, Health care Cost, Insurance Premia Pricing, Two Sector Model, Obesity.
    JEL: I19 E21 O41
    Date: 2009–12
  6. By: Su, Dongwei; He, Xingxing
    Abstract: This paper combines artificial neural networks (ANN), fuzzy optimization and time-series econometric models in one unified framework to form a hybrid intelligent early warning system (EWS) for predicting economic crises. Using quarterly data on 12 macroeconomic and financial variables for the Chinese economy during 1999 and 2008, the paper finds that the hybrid model possesses strong predictive power and the likelihood of economic crises in China during 2009 and 2010 remains high.
    Keywords: Computational intelligence; artificial neural networks; fuzzy optimization; early warning system; economic crises
    JEL: C53 E17
    Date: 2010–01–11

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