nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒02‒13
five papers chosen by
Stan Miles
Thompson Rivers University

  1. Accounting for family background when designing optimal income taxes: A microeconometric simulation analysis By Rolf Aaberge; Ugo Colombino
  2. Does ASEAN Freer Trade Benefit Malaysia? By Othman, Jamal; Yaghoob, Jafari
  3. Accounting for the Racial Property Crime Gap in the US: A Quantitative Equilibrium Analysis By Marco Cozzi
  4. An extension of Davis and Lo's contagion model By Didier Rullière; Diana Dorobantu; Areski Cousin
  5. A Problem-Specific and Effective Metaheuristic for Flexibility Design Model By Jörn Grahl; Michael Schneider; David Francas

  1. By: Rolf Aaberge (Research Department, Statistics Norway); Ugo Colombino (University of Turin)
    Abstract: The purpose of this paper is to introduce and adopt a generalised version of Roemer's (1998) Equality of Opportunity (EOp) framework, which we call extended EOp, for analysing second-best optimal income taxation. Unlike the pure EOp criterion of Roemer (1998) the extended EOp criterion allows for alternative weighting profiles in the treatment of income differentials between as well as within types when types are defined by circumstances that are beyond people's control. This study uses parental education as a measure of exogenous circumstances. An empirical microeconometric model of labour supply in Italy is employed to simulate and identify income tax-transfer rules that are optimal according to the extended EOp criterion. We look for second-best optimality, i.e. the tax-transfer rules are not allowed to depend on family background, they only depend on income: family background is taken indirectly into account. The rules are defined by a universal (not individualized) lump-sum transfer (positive or negative) and by one or two marginal tax rates. A rather striking result of the analysis is that the optimal tax-transfer rule turns out to be a universal lump-sum tax (with marginal tax rates equal to zero), under Roemer's pure EOp criterion as well as under the generalised EOp criterion with moderate degrees of aversion to within-type inequality. A higher degree of within-type inequality aversion instead produces EOp-optimal rules with positive marginal tax rates. When the EOp-version of the Gini welfare function is adopted, the optimal tax rule turns out to be close to the actual 1993 Italian tax system, if not for the important difference of prescribing a universal lump-sum positive transfer of 3,500,000 ITL (= 1807 Euros), which has no comparable counterpart in the actual system. On the other hand, when using the conventional equality of outcome (EO) criterion, the pure lump-sum tax always turns out to be optimal, at least with respect to the classes of two- and three-parameter rules. We also compute optimal rules under the additional constraint that universal lump-sum taxes are not feasible. Overall, the results do not conform to the perhaps common expectation that the EO criterion is more supportive of “interventionist” (redistributive) policies than an extended EOp approach.
    Keywords: Equality of opportunity, equality of outcome, labour supply, optimal income taxation.
    JEL: D19 D63 H21 H24 H31
    Date: 2010
  2. By: Othman, Jamal; Yaghoob, Jafari
    Abstract: This paper examines the impact of intra-ASEAN trade liberalization (AFTA) using a multi-country, computable general equilibrium model (GTAP Model) with special focus on Malaysia. The study considers the full elimination of intra-ASEAN import taxes and export subsidies. Results suggest that Malaysia‟s GDP would only increase marginally while the effects on the individual commodity sectors in the country differ substantially.
    Keywords: ASEAN Free Trade (AFTA); GTAP; CGE Trade Model; AFTA Impacts on Malaysia; Trade liberalization
    JEL: F15 D58
    Date: 2009–06–02
  3. By: Marco Cozzi (Queen’s University)
    Abstract: This paper studies the effects of both labor market conditions and asset poverty on the property crimes involvement of American males. Since the mid 60’s the property crimes arrest rate has been four times higher for black males if compared to white ones. Another set of stylised facts show for the first demographic group lower educational levels and worse labor market outcomes, with the African Americans supplying less hours of labor, gaining lower wages, experiencing both higher unemployment duration and rates. At the same time, more than 30% of black households had a negative net worth. A dynamic general equilibrium model is developed, exploiting these facts to quantitatively assess the race crime gap, that is the difference in crime explained by the difference in observables. The model is calibrated relying on US data and solved numerically. The model captures well relevant dimensions of the crime phenomenon, such as the inmates composition by race, employment status and education. Simulation results show that the observed poverty and labor market outcomes account for as much as 90% of the arrest rates ratio. Finally the model is used to compare two alternative policy experiments aimed at reducing the aggregate crime rate: increasing the expenditure on police seems to be cost effective, when compared to an equally expensive lump-sum subsidy targeted to the high school dropouts.
    Keywords: Property crimes, Computable General Equilibrium, Incomplete Markets, Race, Wealth Inequality
    JEL: K42 D58 D52 D99 J15
    Date: 2010–01
  4. By: Didier Rullière (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Diana Dorobantu (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Areski Cousin (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429)
    Abstract: The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by other defaulting firms (a domino effect being also possible). The spontaneous default without external influence and the infections are described by not necessarily independent Bernoulli-type random variables. Moreover, several contaminations could be required to infect another firm. In this paper we compute the probability distribution function of the total number of defaults in a dependency context. We also give a simple recursive algorithm to compute this distribution in an exchangeability context. Numerical applications illustrate the impact of exchangeability among direct defaults and among contaminations, on different indicators calculated from the law of the total number of defaults. We then examine the calibration of the model on iTraxx data before and during the crisis. The dynamic feature together with the contagion effect seem to have a significant impact on the model performance, especially during the recent distressed period.
    Keywords: credit risk; contagion model; dependent defaults; default distribution; exchangeability; CDO tranches
    Date: 2009–04–08
  5. By: Jörn Grahl (Technische Universität Kaiserslautern, Information Systems and Operations Research Department); Michael Schneider (Chair of Logistics and Supply Chain Management, Universtät Mannheim); David Francas
    Abstract: Matching uncertain demand with capacities is notoriously hard. Operations managers can use mix-flexible resources to shift excess demands to unused capacities. To find the optimal configuration of a mix-flexible production network, a flexibility design problem (FDP) is solved. Existing literature on FDPs provides qualitative structural insights, but work on solution methods is rare. We contribute the first metaheuristic which integrates these structural insights and is specifically tailored to solve FDPs. Our genetic algorithm is compared to commercial solvers on instances of up to 15 demand types, resources, and 500 demand scenarios. Experimental evidence shows that in the realistic case of flexible optimal configurations, it dominates the comparison methods regarding runtime and solution quality.
    Keywords: Flexibility, Metaheuristic, Network Design
    JEL: M11
    Date: 2010–01–28

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