nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒10‒23
25 papers chosen by
Stan Miles
Thompson Rivers University

  1. Fiscal Policy, Regional Disparity and Poverty in China: a General Equilibrium Approach By Li Wang; Xuesong Li; Wenbo Wang; Zhou Guangbao
  2. The Regional Multi-Agent Simulator (RegMAS): an open-source spatially explicit model to assess the impact of agricultural policies By Lobianco, Antonello; Esposti, Roberto
  3. A non-technical introduction to the ANEMMarket model of the Australian National Electricity Market (NEM) By Phillip Wild; John Foster
  4. Decision support for rehabilitation hospital scheduling By Schimmelpfeng, Katja; Helber, Stefan; Kasper, Steffen
  5. An Assessment of the Italian 2007 Second Pillar Reform: a simulation approach By Corsini, Lorenzo; Pacini, Pier Mario; Spataro, Luca
  6. An Activity-Based Assessment of the Potential Impacts of Plug-In Hybrid Electric Vehicles on Energy and Emissions Using One-Day Travel Data By Recker, W. W.; Kang, J. E.
  7. A two-phase genetic algorithm for the berth and quay crane allocation and scheduling problem By A. PONOMAREV; W. DULLAERT; B. RAA
  8. Simulation in Sport Finance By Joris, Drayer; Daniel, Rascher
  9. Scenarios and Options for Productivity Growth in Philippine Agriculture An Application of the AMPLE By February 2010
  10. FX Smile in the Heston Model By Agnieszka Janek; Tino Kluge; Rafał Weron; Uwe Wystup
  11. Back to the Future: Decomposition Analysis of Distributive Policies Using Behavioural Simulations By Bargain, Olivier
  12. Investigating the Impacts of Distributed Generation on Transmission Expansion Cost: An Australian Case Study By Junhua Zhao; John Foster
  13. Learning Cancellation Strategies in a Continuous Double Auction Market By Lucia Milone
  14. Sequential Monte Carlo pricing of American-style options under stochastic volatility models By Bhojnarine R. Rambharat; Anthony E. Brockwell
  15. Macroeconomic Effects of China’s Fiscal Stimulus By Pietro Cova; Massimiliano Pisani; Alessandro Rebucci
  16. FX Smile in the Heston Model By Agnieszka Janek; Tino Kluge; Rafal Weron; Uwe Wystup
  17. Business Cycle Implications of Internal Consumption Habit for New Keynesian Models By Takashi Kano; James M. Nason
  18. Optimal Dynamic Nonlinear Income Taxation under Loose Commitment By Jang-Ting Guo; Alan Krause
  19. Socio-economic utility and chemical potential By R\'emi Lemoy; Eric Bertin; Pablo Jensen
  20. The Case of the Missing Remittances in the FIES : Could it be causing us to mismeasure welfare changes? By Geoffrey Ducanes
  21. A Foundation System and a State System - Private-School Implications on Welfare and Education Expenditure By Andrzej Kwiatkowski
  22. An Efficient, Distributable, Risk Neutral Framework for CVA Calculation By Dongsheng Lu; Frank Juan
  23. The Impact of Repeated Lying on Survey Results By Thomas Chesney; Kay Penny
  24. Fiscal developments in the euro area beyond the crisis: some lessons drawn from fiscal reaction functions By Dufrénot G.; Paul L.
  25. Consumer demand for variety: intertemporal effects of consumption, product switching and pricing policies By Ribeiro, Ricardo

  1. By: Li Wang; Xuesong Li; Wenbo Wang; Zhou Guangbao
    Abstract: The main objective of this research is to analyze the effects of the fiscal dimension of China’s government transfer and preferential tax policy on regional income disparity and poverty reduction. Using a computable general equilibrium model with a three-region component, we find that the preferential tax policy on the eastern coastal region of China has a significant effect on household income, as well as on the FGT indicator. The simulation results suggest that tax policy is a more effective tool to counter against China’s regional disparity than government transfer.
    Keywords: China, Regional Disparity, Fiscal Policy, Government Transfer, Preferential Policy, Poverty, CGE, FGT
    JEL: D58 R13 H24 H32 H53
    Date: 2010
  2. By: Lobianco, Antonello; Esposti, Roberto
    Abstract: RegMAS (Regional Multi Agent Simulator) is an open-source spatially explicit multi-agent model framework specifically designed for long-term simulations of the effects of policies on agricultural systems. Using iterated conventional optimisation problems as agents’ behavioural rules, it allows for a bidirectional integration between geophysical and social models where spatially-distributed characteristics are taken into account in the programming problem of the optimising agents. With RegMAS it is possible to simulate the local specific response to a given policy (or scenario), where policies, together with macro and regional characteristics, are read into the program in specially formatted spreadsheets and standard GIS files. The paper presents the model logic and structure and describes its functioning by applying it to a case-study, where RegMAS results are compared with conventional agent-based modelling to demonstrate the advantages of spatial explicitness. The simulation refers to the impact of the recent “Health Check” of the CAP on farm structures, income and land use in a hilly area of a central Italian region (Marche).
    Keywords: Agent-Based Modelling; Mathematical Programming; Explicit Spatial Analysis; Common Agricultural Policy
    JEL: C63 C61 Q12 Q18
    Date: 2010–06
  3. By: Phillip Wild; John Foster (School of Economics, The University of Queensland)
    Abstract: In this paper, we provide an accessible introduction to our agent-based ANEMMarket simulation model of the Australian National Electricity Market. This model has been purpose built to assess the impacts of emissions trading schemes, carbon taxes and the introduction of significant new suppliers of electricity generated from low or zero carbon emitting generators. We provide an illustrative example that involves the simulation of the impacts of a range of carbon prices on the dispatch of power from different types of generators in different regional locations. From these we compute the resultant carbon reduction effects. However, these remain only illustrative simulations because they do not include a range of operative constraints that exist in reality.
    Date: 2010
  4. By: Schimmelpfeng, Katja; Helber, Stefan; Kasper, Steffen
    Abstract: We present a detailed analysis of the patient and resource scheduling problem in rehabilitation hospitals. In practice, the predominantly therapeutical treatments and activities which are prescribed for the patients are typically scheduled manually. This leads to rigid and inefficient schedules which can have negative effects on the quality of care and the patients' satisfaction. We outline the conceptual framework of a decision support system for the scheduling process that is based on formal optimization models. To this end, we first develop a large-scale monolithic optimization model. Then we derive a numerically tractable hierarchical model system in order to deal with problem instances of realistic sizes. We report numerical results with respect to solution times, model sizes and solution quality.
    Keywords: rehabilitation hospital scheduling, decision support, decomposition, mathematical programming
    JEL: C61
    Date: 2010–10
  5. By: Corsini, Lorenzo; Pacini, Pier Mario; Spataro, Luca
    Abstract: In this paper we aim at assessing the outcomes of the 2007 Italian reform of the complementary social security and to identify the determinants behind them. The reform gave relevant incentives to workers to switch from investing about 7% of their gross wages into a compulsory defned benefit scheme inside the firm (which took the form of a termination indemnity payment, the TFR scheme) to an external pension fund. We provide a theoretical framework to model workers' choice problem of switching between these pension schemes and we then perform an agent-based simulation taking into account all the details of the reform. Our simulations are able to replicate the Italian data in term of adhesion rates to complementary social security and also to identify some of the key determinants of that outcome, like the fiscal incentives, the financial literacy and the expectations on the rate of returns of pension funds.
    Keywords: Agent Based Simulation; Pension Schemes; Second Pillar
    JEL: C63 E27 G23 J32
    Date: 2010
  6. By: Recker, W. W.; Kang, J. E.
    Abstract: With the success of Hybrid Electric Vehicles (HEVs) in the automobile market, Plug-In Hybrid Electric Vehicles (PHEVs) are emerging as the next evolution of this attractive alternative. PHEV market penetration is expected to lead to lower gasoline consumption and less emission. The main objective of this research is to assess PHEVs’ energy profile impacts based on simulation of vehicles used in activity and travel patterns drawn from the 2000-2001 California Statewide Household Travel Survey. Simulations replicating reported continuous one day data are used to generate realistic energy impact assessment of PHEV market penetration. A secondary objective is to estimate the decreased gasoline consumption and increased electricity demand in California. This will involve testing various scenarios involving battery charging to develop policies and strategies to mitigate the recharging demands placed on the grid during periods of peak consumption.
    Date: 2010–08–01
    Abstract: This paper presents a hybrid genetic algorithm for a dynamic continuous berth allocation and quay crane scheduling problem. In the first phase of the algorithm, vessels are positioned at berthing locations and quay cranes are assigned to vessels using novel crane assignment heuristics. In the second phase, cranes are scheduled to minimize the distance travelled in repositioning the cranes. The solution approach is tested on benchmarks derived from real-life data, with varying levels of capacity utilization.
    Keywords: Berth allocation, Quay crane scheduling, Genetic algorithm.
    Date: 2010–08
  8. By: Joris, Drayer; Daniel, Rascher
    Abstract: Simulations have long been used in business schools to give students experience making real-world decisions in a relatively low-risk environment. The OAKLAND A’S BASEBALL BUSINESS SIMULATOR takes a traditional business simulation and applies it to the sport industry where sales of tangible products are replaced by sales of an experience provided to fans. The simulator asks students to make decisions about prices for concessions, parking, and merchandise, player payroll expenses, funding for a new stadium, and more. Based on these inputs, the program provides detailed information about the state of the franchise after each simulated year, including attendance, winning percentage, revenues vs. expenses, revenue sharing, and stadium financing. The use of simulations such as this one enhances students’ organizational skills and students’ ability to think critically and imaginatively about the data while applying relevant knowledge and an appropriate strategy to achieve the best possible results. This is particularly important in the field of sport management where few, if any, other simulators exist that are specific to the field.
    Keywords: baseball business; computer-based learning; simulation/gaming; stadium/facility financing; sport finance; sport management
    JEL: L83
    Date: 2010
  9. By: February 2010 (Philippine Institute for Development Studies)
    Abstract: Sustaining and accelerating agricultural growth remains a development imperative in view of persistent rural poverty and emerging threats to food security. While growth can be achieved by expansion of agricultural area and input intensification, growth through improvement in productivity is a promising option. However, productivity growth appears to be a relatively low priority for policy. Rather, the agricultural strategy is oriented toward domestic protection to achieve self‐sufficiency and to support production by generous subsidies. In contrast, an alternative strategy may be one that is competition‐oriented and productivity‐based, i.e., one that favors integration with the international economy through trade, as well as making domestic investments targeted at productivity growth. Scenarios for Philippine agriculture under these policy options are evaluated using a new supply and demand model (Agricultural Multi‐market Model for Policy Evaluation or AMPLE). Model simulations suggest that: rapid productivity growth, even when combined with trade liberalization, is generally favorable for farmers and consumers based on improved outlook on production, exports, and food consumption. In contrast, trade liberalization alone has a contractionary effect on agriculture; and production support is a costly instrument for promoting agricultural growth. The model experiments suggest that a back‐to‐basics strategy for agriculture, incorporating various productivity‐based instruments such as investments in R&D, extension, rural infrastructure, protection of the resource base of agriculture, and even human capital formation and institutional reforms, are key to long‐term agricultural growth.
    Keywords: Productivity growth, agriculture, scenario analysis, supply and demand, technological change
    JEL: D24 Q18 C30
    Date: 2010
  10. By: Agnieszka Janek; Tino Kluge; Rafał Weron; Uwe Wystup
    Abstract: The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the process for the volatility is nonnegative and mean-reverting, which is what we observe in the markets. Secondly, there exists a fast and easily implemented semi-analytical solution for European options. In this article we adapt the original work of Heston (1993) to a foreign exchange (FX) setting. We discuss the computational aspects of using the semi-analytical formulas, performing Monte Carlo simulations, checking the Feller condition, and option pricing with FFT. In an empirical study we show that the smile of vanilla options can be reproduced by suitably calibrating three out of five model parameters.
    Keywords: Heston model; vanilla option; stochastic volatility; Monte Carlo simulation; Feller condition; option pricing with FFT
    JEL: C5 C63 G13
    Date: 2010–10
  11. By: Bargain, Olivier (University College Dublin)
    Abstract: For policy makers and analysts, it is important to isolate the redistributive impact of tax-benefit policy changes from changes in the environment in which policies operate. When actual reforms are motivated by work incentives, it is also crucial to evaluate behavioural responses and the distributional consequences thereof. For that purpose, we embed counterfactual simulations in a formal framework based on the Shapley value decomposition and quantify the relative roles of (i) tax-benefit policy changes (direct policy effect), (ii) labour supply responses to the policy reforms (indirect effect) and (iii) all other factors affecting income distribution over time. An application to the UK shows that the redistributive reforms of the 1998-2001 period have offset the increase in inequality that would have occurred otherwise. They also contribute to a strong decline in child poverty and poverty amongst single parent households. In the latter group, a third of the headcount poverty reduction (and half of the reduction in the depth of poverty) is on account of the very large incentive effect of policy changes.
    Keywords: tax-benefit policy, inequality, poverty, Shapley value decomposition, behavioural microsimulation, labour supply
    JEL: H23 H53 I32
    Date: 2010–09
  12. By: Junhua Zhao; John Foster (School of Economics, The University of Queensland)
    Abstract: Distributed generation (DG) is rapidly increasing its penetration level in Australia, and is expected to play a more important role in the power industry. An important benefit of DG is its ability to defer transmission investments. In this paper, a simulation model is implemented to conduct quantitative analysis on the effect of DG on transmission investment deferral. The transmission expansion model is formulated as a multi-objective optimization problem with comprehensive technical constraints, such as AC power flow and system security. The model is then applied to study the Queensland electricity market in Australia. Simulation results show that, DG does show the ability to reduce transmission investments. This ability however is greatly influenced by a number of factors, such as the locations of DG, the network topology, and the power system technical constraints.
    Date: 2010
  13. By: Lucia Milone (Dept. of Applied Mathematics, University Ca'Foscari of Venice)
    Abstract: This paper deals with two different issues. On one side, it tries to determine if the equilibrium order placement strategies analytically derived in Foucault et al. (2005) are learnable by no-maximizing agents that update their strategies on the only base of their own past experience (via genetic algorithm). Results state outcome (but not strategic) equivalence. On the other side, it relaxes the assumption in the original model by Foucault for which cancellation is not allowed and evaluate market performance. Results are mixed; the introduction of a cancellation option turns out to be benecial dependently on the key determinants of the market dynamic (i.e., the arrival rate and the percentage of patient traders) and an additional setup variable: the initial level of order aggressiveness in the market.
    Keywords: market evaluation; market design; equilibrium strategies; order cancellation; genetic algorithms.
    JEL: C63 D44 D61 D83
    Date: 2010–09
  14. By: Bhojnarine R. Rambharat; Anthony E. Brockwell
    Abstract: We introduce a new method to price American-style options on underlying investments governed by stochastic volatility (SV) models. The method does not require the volatility process to be observed. Instead, it exploits the fact that the optimal decision functions in the corresponding dynamic programming problem can be expressed as functions of conditional distributions of volatility, given observed data. By constructing statistics summarizing information about these conditional distributions, one can obtain high quality approximate solutions. Although the required conditional distributions are in general intractable, they can be arbitrarily precisely approximated using sequential Monte Carlo schemes. The drawback, as with many Monte Carlo schemes, is potentially heavy computational demand. We present two variants of the algorithm, one closely related to the well-known least-squares Monte Carlo algorithm of Longstaff and Schwartz [The Review of Financial Studies 14 (2001) 113--147], and the other solving the same problem using a "brute force" gridding approach. We estimate an illustrative SV model using Markov chain Monte Carlo (MCMC) methods for three equities. We also demonstrate the use of our algorithm by estimating the posterior distribution of the market price of volatility risk for each of the three equities.
    Date: 2010–10
  15. By: Pietro Cova; Massimiliano Pisani; Alessandro Rebucci
    Abstract: This paper analyzes the macroeconomic impact of China’s 2009-2010 fiscal stimulus package by simulating a dynamic general equilibrium multi-country model of the world economy, showing that the effects on China’s economic activity are sizeable: absent fiscal stimulus China’s GDP would be 2.6 and 0.6 percentage points lower in 2009 and 2010, respectively. The effects are stronger under a US dollar peg because of the imported loose monetary policy stance from the United States. Higher Chinese aggregate demand stimulates higher (gross and net) imports from other regions, in particular from Japan and the rest of the world, and, only to a lesser extent, from the United States and the euro area. However, the overall GDP impact of the Chinese stimulus on the rest of the world is limited. These results warn that a fiscal policydriven increase in China’s domestic aggregate demand associated with a more flexible exchange rate regime have only a limited potential to contribute to an orderly resolution of global trade and financial imbalances.
    Keywords: Fiscal stimulus, Financial crisis
    JEL: E62 F41 F42 H30 H63
    Date: 2010–10
  16. By: Agnieszka Janek; Tino Kluge; Rafal Weron; Uwe Wystup
    Abstract: The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the process for the volatility is non-negative and mean-reverting, which is what we observe in the markets. Secondly, there exists a fast and easily implemented semi-analytical solution for European options. In this article we adapt the original work of Heston (1993) to a foreign exchange (FX) setting. We discuss the computational aspects of using the semi-analytical formulas, performing Monte Carlo simulations, checking the Feller condition, and option pricing with FFT. In an empirical study we show that the smile of vanilla options can be reproduced by suitably calibrating three out of five model parameters.
    Date: 2010–10
  17. By: Takashi Kano; James M. Nason
    Abstract: This paper studies the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that consumption habit often improves the ability of NKDSGE models to match output and consumption growth spectra. Nonetheless, the fit of NKDSGE models with consumption habit is susceptible to the source of the nominal rigidity, to spectra identified by permanent productivity shocks, to the frequencies used for evaluation, and to the choice of monetary policy rule. These vulnerabilities suggest that NKDSGE model specification is fragile.
    JEL: E10 E20 E32
    Date: 2010–10
  18. By: Jang-Ting Guo; Alan Krause
    Abstract: This paper examines an infinite-horizon model of dynamic nonlinear income taxation in which there exists a small probability that the government cannot commit to its future tax policy. In this "loose commitment" environment, we find that even a little uncertainty over whether the government can commit yields substantial effects on the optimal dynamic nonlinear income tax system. Under an empirically plausible parameterization, numerical simulations show that high-skill individuals must be subsidized in the short run, despite the government's redistributive objective, unless the probability of commitment is higher than 98%. Loose commitment also reverses the short-run welfare effects of changes in most model parameters. In particular, all individuals are worse-off, rather than better-off, in the short run when the proportion of high-skill individuals in the economy increases. Finally, our main findings remain qualitatively robust to a setting in which loose commitment is modelled as a Markov switching process.
    Keywords: Dynamic Income Taxation, Loose Commitment
    JEL: H21 H24
    Date: 2010–10
  19. By: R\'emi Lemoy; Eric Bertin; Pablo Jensen
    Abstract: In statistical physics, the conservation of particle number results in the equalization of the chemical potential throughout a system at equilibrium. In contrast, the homogeneity of utility in socio-economic models is usually thought to rely on the competition between individuals, leading to Nash equilibrium. We show that both views can be reconciled by introducing a notion of chemical potential in a wide class of socio-economic models, and by relating it in a direct way to the equilibrium value of the utility. This approach also allows the dependence of utility across the system to be determined when agents take decisions in a probabilistic way. Numerical simulations of a urban economic model also suggest that our result is valid beyond the initially considered class of solvable models.
    Date: 2010–10
  20. By: Geoffrey Ducanes (School of Economics, University of the Philippines Diliman)
    Abstract: This paper highlights the increasing underreporting of remittances by the FIES compared to BSP and World Bank figures, advances possible reasons why such underreporting is occurring, and examines its implications for welfare measurement in the country at points in time and across time. Using simulation exercises, the paper finds that indeed the "missing remittances" in the FIES could be causing the mismeasurement of poverty and inequality since 1997, possibly clouding the direction of welfare change.
    Date: 2010–03
  21. By: Andrzej Kwiatkowski
    Abstract: This paper examines the effects of two different education financing systems: a foundation system and a state system on the level and distribution of resources devoted to education in the presence of private schools. We use political economy approach where households differ in their level of income, and the central tax rate used to finance education is determined by a majority vote. Our analysis focuses on implications of allowing for a private-school option. To evaluate the importance of private schools we develop a computational model and calibrate it using USA data. The results reveal that the private school option is very important quantitatively in terms of welfare, total resources spent on education and equity.
    Keywords: Education finance reform, Private schools
    JEL: I22 I28 H42
    Date: 2010–10
  22. By: Dongsheng Lu; Frank Juan
    Abstract: The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of these risks. In the present article, we reviewed several different approaches for calculating CVA, and compared the advantage and disadvantage for each method. We also introduced an more efficient and scalable computational framework for this calculation.
    Date: 2010–10
  23. By: Thomas Chesney (Nottingham University Business School); Kay Penny (Edinburgh Napier University)
    Abstract: A Monte Carlo simulation study is carried out to examine the effects on study results of subjects completing a survey more than once. Three strategies subjects might use to do this - which is known as farming - are studied. Findings show that farming influences results and can cause both statistical hypothesis testing Type I (false positive) and Type II (false negative) errors in unpredictable ways. A literature review from one management sub-discipline (marketing) was undertaken to investigate how common problem farming might be. Results suggest that while the incentivised survey method which might encourage farming is popular and some approaches to data collection make it difficult to prevent farming altogether, it is unlikely to be commonplace as many research methods prevent it.
    Keywords: Survey, Incentive, Online
    Date: 2010–10–13
  24. By: Dufrénot G.; Paul L.
    Abstract: In this paper, we examine whether the fact that governments incorporate an objective of sustainability in their budgetary decisions is an element likely to increase the likelihood of a decrease in their deficit and debt ratios beyond the crisis (over the years from 2010 to 2015). We estimate a fiscal reaction function for the Euro area countries and demonstrate that the discretionary policies seem to be pro cyclical in average, thereby influencing the budget balance in the opposite direction than the automatic stabilizers. Our simulations of these rules over the next five years lead us to conclude that two groups of countries could emerge as regards their respective budgetary situations. On the one hand, some “virtuous” countries whose structural deficits will diminish whatever the “exit crisis” scenario envisaged, whereas on the other side, others will not succeed in stabilizing their national debt ratio, because their discretionary fiscal policy is less pro cyclical.
    Keywords: euro zone ; exit crisis scenario ; fiscal policy
    JEL: C23 H61 H63
    Date: 2010
  25. By: Ribeiro, Ricardo
    Abstract: The concept of diminishing marginal utility is a cornerstone of economic theory. The consumption of a good typically creates satiation that diminishes the marginal utility of consuming more. Temporal satiation induces consumers to increase their stimulation level by seeking variety and therefore substitute towards other goods (substitutability across time) or other differentiated versions (products) of the good (substitutability across products). The literature on variety-seeking has developed along two strands, each focusing on only one type of substitutability. I specify a demand model that attempts to link these two strands of the literature. This issue is economically relevant because both types of substitutability are important for retailers and manufacturers in designing intertemporal price discrimination strategies. The consumer demand model specified allows consumption to have an enduring effect and the marginal utility of the different products to vary over consumption occasions. Consumers are assumed to make rational purchase decisions by taking into account, not only current and future satiation levels, but also prices and product choices. I then use the model to evaluate the demand implications of a major pricing policy change from hi-low pricing to an everyday low pricing strategy. I find evidence that consumption has a lasting effect on utility that induces substitutability across time and that the median consumer has a taste for variety in her product decisions. Consumers are found to be forward-looking with respect to the duration since the last purchase, to price expectations and product choices. Pricing policy simulations suggest that retailers may increase revenue by reducing the variance of prices, but that lowering the everyday level of prices may be unprofitable.
    Keywords: Variety seeking; Intertemporal effects of consumption; product switching; Pricing; Dynamic demand;
    JEL: D12 L81 C61
    Date: 2010–08–15

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