New Economics Papers
on Computational Economics
Issue of 2010‒06‒11
twelve papers chosen by

  1. A global CGE model at the NUTS 1 level for trade policy evaluation By Gabriele Standardi
  2. Impact of ASEAN-India FTA on India’s Plantation Commodities: A Simulation Analysis By Gordhan K. Saini
  3. Effects of Sharing Parental Leave on Pensioners' Poverty and Gender Inequality in Old Age. A Simulation in IFSIM By Baroni, Elisa
  4. Efficiency of coordinate descent methods on huge-scale optimization problems By NESTEROV, Yurii
  5. Numerical methods for an optimal order execution problem By Fabien Guilbaud; Mohamed Mnif; Huy\^en Pham
  6. Model predictive control, the economy, and the issue of global warming By BRECHET, Thierry; CAMACHO, Carmen; VELIOV, Vladimir
  7. Simple Mechanisms for Managing Complex Aquifers By Stergios Athanassoglou; Glenn Sheriff; Tobias Siegfried; Woonghee Tim Huh
  8. Multistage Stochastic Portfolio Optimisation in Deregulated Electricity Markets Using Linear Decision Rules By Paula Rocha; Akwum Daniel Kuhn
  9. Comparing the accuracy of ABC and time-driven ABC in complex and dynamic environments: a simulation analysis By S. HOOZÉE; M. VANHOUCKE; W. BRUGGEMAN;
  10. The Global Bioenergy Expansion: How Large Are the Food−Fuel Trade-Offs? By Fabiosa, Jacinto F.; Beghin, John C.; Dong, Fengxia; Elobeid, Amani; Tokgoz, Simla; Yu, Tun-Hsiang
  11. Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies By di Pace, Federico; Faccini, Renato
  12. A Monocentric City With Discrete Transit Stations By Moez Kilani; Fabien Leurent; André De Palma

  1. By: Gabriele Standardi (Department of Economics (University of Verona))
    Abstract: This paper aims at building a global CGE trade model at NUTS 1 level (subnational level) for the EU15 regions. The focus is on the production side. The model is used to assess production reallocation across sectors in each NUTS 1 regions after an agricultural tariff liberalization. Nevertheless, it can also be used to simulate other trade policy reform according to the special objective of the researcher. The model is parsimonious in terms of data at the NUTS 1 level. The unskilled and skilled labour are the source of the heterogeneity across the NUT 1 regions. A stylised model is built in order to interpret the results. A sensitivity analysis on trade policy results according to two different degrees of skilled/unskilled labour mobility (perfect immobility and high mobility within the EU15) is conducted. Moreover, an integrated unskilled/skilled labour market within EU27 is tested.
    Keywords: computable general equilibrium models, international trade
    JEL: F12 F13 D58 Q17
    Date: 2010–06
  2. By: Gordhan K. Saini (Indira Gandhi Institute of Development Research)
    Abstract: The present study attempts a quantitative assessment of the impact of recently signed ASEAN-India FTA (AIFTA) for selected plantation commodities (coffee, tea and pepper) in India. We use partial equilibrium modeling approach (SMART model and gravity model) to simulate the likely import increase of the plantation commodities under the proposed tariff reduction schedule of the AIFTA. Overall, the results suggest that the AIFTA will cause significant increase in India’s import of plantation commodities. The increase in imports is mostly driven by trade creation rather than trade diversion. From the economic efficiency point of view, trade creation improves welfare as the new imports replace the high-cost domestic production. The analysis shows that the proposed tariff reduction may lead to significant tariff revenue loss to the government. However, the gain in consumer surplus (due to the fall in domestic price and the consequent reduction in dead-weight loss) outweighs the loss in tariff revenue leading to net welfare gain. By and large, the simulations based on the SMART and gravity models provide similar results on the magnitude of total increase in imports. The surge of new imports may have adverse impact for the livelihood of the Indian farmers engaged in the production of these commodities. Farmers will have to realign the structure of production according to the changing price signals and hence it is critical to provide adjustment assistance to the affected farmers.
    Keywords: SMART Model, Gravity Model, Simulation Analysis
    JEL: F10 F14 F17
    Date: 2010
  3. By: Baroni, Elisa (Institute for Futures Studies)
    Abstract: <p> The poverty outcome in old age is affected by labour market reforms. Using our in house agent based simulation model IFSIM we show that sharing equally the parental leave can increase or reduce poverty among the elderly depending on the macro and behavioural responses that the Reform off-sets. In general, it can be good for (elderly) women provided that (i) it spurs them to work more, particularly in older ages (ii) it does not slow down economic growth (hence pension income growth) below a level when working more does not pay. Our simulations show that the effect of this Reform on poverty and gender inequality is time dependent: different outcomes might be expected for different generations depending on whether the balancing mechanism (in the state income pension) is present or not. In general, the Reform might not lead to positive outcomes if it occurs in conjunction with the striking of the automatic balancing, unless a behavioural response to work more among older workers (in response to the balancing) is also unleashed.<p>
    Keywords: Poverty; Pensioners; Parental leave; Simulation model; IFSIM; Gender inequality
    JEL: C15 J13 J14 J16
    Date: 2010–06–03
  4. By: NESTEROV, Yurii (Center for Operations Research and Econometrics (CORE), UniversitŽ catholique de Louvain (UCL), Louvain la Neuve, Belgium)
    Abstract: In this paper we propose new methods for solving huge-scale optimization problems. For problems of this size, even the simplest full-dimensional vector operations are very expensive. Hence, we propose to apply an optimization technique based on random partial update of decision variables. For these methods, we prove the global estimates for the rate of convergence. Surprisingly enough, for certain classes of objective functions, our results are better than the standard worst-case bounds for deterministic algorithms. We present constrained and unconstrained versions of the method, and its accelerated variant. Our numerical test confirms a high efficiency of this technique on problems of very big size.
    Keywords: Convex optimization, coordinate relaxation, worst-case efficiency estimates, fast gradient schemes, Google problem
    Date: 2010–01–01
  5. By: Fabien Guilbaud; Mohamed Mnif; Huy\^en Pham
    Abstract: This paper deals with numerical solutions to an impulse control problem arising from optimal portfolio liquidation with bid-ask spread and market price impact penalizing speedy execution trades. The corresponding dynamic programming (DP) equation is a quasi-variational inequality (QVI) with solvency constraint satisfied by the value function in the sense of constrained viscosity solutions. By taking advantage of the lag variable tracking the time interval between trades, we can provide an explicit backward numerical scheme for the time discretization of the DPQVI. The convergence of this discrete-time scheme is shown by viscosity solutions arguments. An optimal quantization method is used for computing the (conditional) expectations arising in this scheme. Numerical results are presented by examining the behaviour of optimal liquidation strategies, and comparative performance analysis with respect to some benchmark execution strategies. We also illustrate our optimal liquidation algorithm on real data, and observe various interesting patterns of order execution strategies. Finally, we provide some numerical tests of sensitivity with respect to the bid/ask spread and market impact parameters.
    Date: 2010–06
  6. By: BRECHET, Thierry (UniversitŽ catholique de Louvain, CORE and Louvain School of Management, Chair Lhoist Berghemans in Environmental Economics and Management, B-1348 Louvain-la-Neuve, Belgium); CAMACHO, Carmen (UniversitŽ catholique de Louvain, Belgian National Foundation of Scientific Research and Economics Department, B-1348 Louvain- la-Neuve, Belgium); VELIOV, Vladimir (ORCOS, Institute of Mathematical Methods in Economics, Vienna University of Technology, A-1040 Vienna, Austria)
    Abstract: This study is motivated by the evidence of global warming, which is caused by human activity but affects the efficiency of the economy. We employ the integrated assessment Nordhaus DICE-2007 model [16]. Generally speaking, the framework is that of dynamic optimization of the discounted inter-temporal utility of consumption, taking into account the economic and the environmental dynamics. The main novelty is that several reasonable types of behavior (policy) of the economic agents, which may be non-optimal from the point of view of the global performance but are reasonable form an individual point of view and exist in reality, are strictly defined and analyzed. These include the concepts of Òbusiness as usualÓ, in which an economic agent ignores her impact on the climate change (although adapting to it), and of Òfree riding with a perfect foresightÓ, where some economic agents optimize in an adaptive way their individual performance expecting that the others would perform in a collectively optimal way. These policies are defined in a formal and unified way modifying ideas from the so-called Òmodel predictive controlÓ. The introduced concepts are relevant to many other problems of dynamic optimization, especially in the context of resource economics. However, the numerical analysis in this paper is devoted to the evolution of the world economy and the average temperature in the next 150 years, depending on different scenarios for the behavior of the economic agents. In particular, the results show that the Òbusiness as usualÓ, although adaptive to the change of the atmospheric temperature, may lead within 150 years to increase of temperature by 2¡C more than the collectively optimal policy.
    Keywords: environmental economics, dynamic optimization, optimal control, global warming, model predictive control, integrated assessment
    Date: 2010–05–01
  7. By: Stergios Athanassoglou; Glenn Sheriff; Tobias Siegfried; Woonghee Tim Huh
    Abstract: Standard economic models of groundwater management assume perfect transmissivity (i.e., the aquifer behaves as a bathtub), no external effects of groundwater stocks, and/or homogenous agents. In this article, we develop a model relaxing these assumptions. Although our model generalizes to an arbitrary number of cells, we are able to obtain key insights with a two-cell finite-horizon differential game. We find a simple linear mechanism that induces the socially optimal extraction path in Markov-perfect equilibrium. Moreover, implementation requires that the regulator need only monitor the state of the resource (e.g., depth of the aquifer), not individual extraction rates. We illustrate the mechanism with a simulation based on data from the Indian state of Andhra Pradesh. The simulation suggests that significant welfare loss may occur if the regulator disregards physical and economic complexity.
    Keywords: groundwater, differential games, imperfect monitoring
    Date: 2009–10
  8. By: Paula Rocha; Akwum Daniel Kuhn
    Abstract: The deregulation of electricity markets increases the financial risk faced by retailers who procure electric energy on the spot market to meet their customers’ electricity demand. To hedge against this exposure, retailers often hold a portfolio of electricity derivative contracts. In this paper, we propose a multistage stochastic mean-variance optimisation model for the management of such a portfolio. To reduce computational complexity, we perform two approximations: stage-aggregation and linear decision rules (LDR). The LDR approach consists of restricting the set of decision rules to those affine in the history of the random parameters. When applied to mean-variance optimisation models, it leads to convex quadratic programs. Since their size grows typically only polynomially with the number of periods, they can be efficiently solved. Our numerical experiments illustrate the value of adaptivity inherent in the LDR method and its potential for enabling scalability to problems with many periods.
    Keywords: OR in energy, electricity portfolio management, stochastic programming, risk management, linear decision rules
    Date: 2010–06–03
    Abstract: This paper compares the accuracy of traditional ABC and time-driven ABC in complex and dynamic environments through simulation analysis. First, when unit times in time-driven ABC are known or can be flawlessly estimated, time-driven ABC coincides with the benchmark system and in this case our results show that the overall accuracy of traditional ABC depends on (1) existing capacity utilization, (2) diversity in the actual mix of productive work, and (3) error in the estimated percentage mix. In particular, we find that when error in the estimated percentage mix is low (that is, when the ABC model is regularly adjusted to changes in activity driver volumes), growing unused capacity raises the inaccuracy of ABC, especially when diversity in the actual mix of productive work is high. When error in the estimated percentage mix is high, unused capacity may counterbalance some of the impact of this error but not entirely; the offsetting effect is highest when diversity in the actual mix of productive work is also high. Second, when unit times in time-driven ABC are subject to measurement error, we compare the overall accuracy of traditional ABC versus time-driven ABC and detect that when diversity in the actual mix of productive work is low, time-driven ABC tends to be more accurate than traditional ABC, especially at higher levels of unused capacity. Alternatively, when diversity in the actual mix of productive work is high, traditional ABC tends to be more accurate than time-driven ABC, especially at lower levels of unused capacity. Finally, it is noteworthy that the accuracy of traditional ABC compared to time-driven ABC increases in case of biased unit time estimates.
    Keywords: ABC, time-driven activity-based costing, costing system design, costing errors, simulation
    Date: 2010–03
  10. By: Fabiosa, Jacinto F.; Beghin, John C.; Dong, Fengxia; Elobeid, Amani; Tokgoz, Simla; Yu, Tun-Hsiang
    Abstract: We summarize a large set of recent simulations and policy analyses based on FAPRI’s world multimarket, partial-equilibrium models. We first quantify and project the emergence of biofuel markets in US and world agriculture for the coming decade. Then, we perturb the models with incremental shocks in US and world ethanol consumption in deviation from this projected emergence to assess their effects on world agricultural and food markets. Various food-biofuel trade-offs are quantified and examined. Increases in food prices are moderate for the US ethanol expansion and even smaller for the ethanol expansion outside the United States, which is based on sugarcane feedstock, which has little feedback on other markets. With the US expansion, the high protection in the US ethanol market limits potential adjustments in the world ethanol markets and increases the demand for feedstock within the United States. Changes in US grain and oilseed market prices propagate to world markets, as the United States is a large exporter in these markets. With changes in world prices, land allocation in the rest of the world responds to the new relative prices as in the United States but with smaller magnitudes because price transmission to local markets is less than full.
    Keywords: ethanol; biofuel; land effects; food prices; trade-offs
    Date: 2010–01–01
  11. By: di Pace, Federico (Department of Economics, Mathematics and Statistics, Birkbeck, University of London); Faccini, Renato (Bank of England)
    Abstract: We extend the standard textbook search and matching model by introducing deep habits in consumption. The cyclical fluctuations of vacancies and unemployment in our model can replicate those observed in the US data, with labour market tightness being 20 times more volatile than consumption. Vacancies display a hump-shaped response to technology shocks as well as autocorrelation coefficients that are in line with the empirical evidence. Our model preserves the assumption of fully flexible wages for the new hires and the calibration is consistent with the estimated elasticity of unemployment to unemployment benefits. The numerical simulations generate an artificial Beveridge curve which is in line with the data.
    Keywords: Consumption; business cycles; labour market fluctuations; search and matching; wage bargaining
    JEL: E21 E24 E32 J41 J64
    Date: 2010–06–03
  12. By: Moez Kilani (Université Paris-Est, LVMT - Université Paris-Est, Equippe/IUT B - Université Charles de Gaulle - Lille III); Fabien Leurent (LVMT - Laboratoire Ville, Mobilité, Transports - INRETS - Université Paris-Est - Ecole Nationale des Ponts et Chaussées); André De Palma (ENS Cachan - Ecole Normale Supérieure de Cachan - École normale supérieure de Cachan - ENS Cachan, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, IUF - Institut Universitaire de France)
    Abstract: We extend the monocentric model by considering a discrete number of accessible mass transit stations. Households combine two modes for their daily home-to-work trip: a first mode for terminal access to stations and a second (long haul) mode which consists in radial mass transit axes. The urban equilibrium, i.e. city size and households' distribution, is derived as a function of the mass transit network and the distribution of land housing capacity. Then at the urban equilibrium the land rent is peaked at transit stations and decreases with the travel cost from the city center rather than with the distance to it. Accordingly, the housing lot size increases with the travel cost from the city center. These features distinguish our framework from previous monocentric models. Our analysis is based on the assumptions that land-owners are absent and city is open (the households' level of utility is given and the population size is endogenous). For numerical illustration, the model is calibrated to a selected rail network in the Paris area. A sensitivity analysis of the urban structure and land-use equilibrium is conducted with respect to the key model parameters.
    Date: 2010–06–02

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.