New Economics Papers
on Computational Economics
Issue of 2010‒12‒23
thirteen papers chosen by

  1. The Impacts of Biofuels Targets on Land-Use Change and Food Supply: A Global Cge Assessment By Timilsina, Govinda; Beghin, John C.; van der Mensbrugghe, Dominique; Mevel, Simon
  2. Network Formation with Adaptive Agents By Schuster, Stephan
  3. Learning in agent based models By Alan Kirman
  4. The Effects of Bonus Taxes on Executive Compensation in a Principal-Agent Model By Helmut Dietl; Martin Grossmann; Markus Lang; Simon Wey
  5. American Step-Up and Step-Down Credit Default Swaps under Levy Models By Tim Siu-Tang Leung; Kazutoshi Yamazaki
  6. Roots and Effects of Investments' Misperception By Rosella Castellano; Roy Cerqueti
  7. The Tax Policy in the Chilean Economy: a Regional Applied General Equilibrium Analysis By Marcos Minoru Hasegawa
  8. Bounded Rationality In Finite Automata By Ioannou, Christos A; Nompelis, Ioannis
  9. Accounting for Product Substitution in the Analysis of Food Taxes Targeting Obesity By Miao, Zhen; Beghin, John C.; Jensen, Helen H.
  10. The computational complexity of boundedly rational choice behavior By Thomas DEMUYNCK
  11. Fully Flexible Views: Theory and Practice By Attilio Meucci
  12. Corruption, Voting and Employment Status: Evidence from Russian Parliamentary Elections By Olga Popova
  13. Differentiating Indexation in Dutch Pension Funds By Roel Beetsma; Alessandro Bucciol

  1. By: Timilsina, Govinda; Beghin, John C.; van der Mensbrugghe, Dominique; Mevel, Simon
    Abstract: We analyze the long-term impacts of large-scale expansion of biofuels on land-use change, food supply and prices, and the overall economy in various countries or regions using a multi-country, multi-sector global computable general equilibrium model augmented with an explicit land-use module and detailed biofuel sectors. We find that an expansion of biofuel production to meet the existing or even higher targets in various countries would slightly reduce GDP at the global level but with mixed effects across countries or regions. Significant land re-allocation would take place with notable decreases in forest and pasture lands in a few countries. The expansion of biofuels would cause a moderate decrease in world food supply and more significant decreases in developing countries like India and Sub-Saharan Africa. Feedstock commodities (sugar, corn and oil seeds) would experience significant increases in their prices in 2020, but other price changes are small.
    Keywords: biofuels; ethanol; biodiesel; land use; food supply; food prices; CGE model; impacts
    JEL: D58 Q Q17 Q42 Q48 Q54
    Date: 2010–12–15
  2. By: Schuster, Stephan
    Abstract: In this paper, a reinforcement learning version of the connections game first analysed by Jackson and Wolinsky is presented and compared with benchmark results of fully informed and rational players. Using an agent-based simulation approach, the main nding is that the pattern of reinforcement learning process is similar, but does not fully converge to the benchmark results. Before these optimal results can be discovered in a learning process, agents often get locked in a state of random switching or early lock-in.
    Keywords: agent-based computational economics; strategic network formation; network games; reinforcement learning
    JEL: C63 D85
    Date: 2010
  3. By: Alan Kirman (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: This paper examines the process by which agents learn to act in economic environments. Learning is particularly complicated in such situations since the environment is, at least in part, made up of other agents who are also learning. At best, one can hope to obtain analytical results for a rudimentary model. To make progress in understanding the dynamics of learning and coordination in general cases one can simulate agent based models to see whether the results obtained in skeletal models translate into the more general case. Using this approach can help us to understand which are the crucial assumptions in determining whether learning converges and, if so, to which sort of state. Three examples are presented, one in which agents learn to form trading relationships, one in which agents misspecify the model of their environment and a last one in which agents may learn to take actions which are systematically favourable, (or unfavourable) for them. In each case simulating models in which agents operate with simple rules in a complex environment, allows us to examine the role of the type of learning process used by the agents the extent to which they coordinate on a final outcome and the nature of that outcome.
    Keywords: Learning; agent based models; simulations; equilibria; asymmetric outcomes
    Date: 2010–12–09
  4. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Simon Wey (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: The financial crisis from 2007-2010 was the worst crisis since the Great Depression. Politicians, economists and regulators search for measures to avoid such a crisis to repeat. One prominent proposal is the introduction of bonus taxes for corporate executives. In this paper, we analyze the effects of such a bonus tax on executive compensation in a principal-agent model. Our paper shows that a bonus tax may lead to the unintended result that the effort-based compensation increases at the expense of the fixed salary. The introduction of a bonus tax can further induce the principal to offer higher bonuses even though the agent always reduces his effort. The tax-induced effort reduction by the agent decreases with an increase in the product of risk aversion and uncertainty. Moreover, a bonus tax will decrease social welfare unless the social planner puts a sufficiently high weight on tax revenue. Finally, we present simulation results for two general classes of effort cost functions.
    Keywords: Principal-agent model, bonus tax, labor taxation, executive compensation, financial regulation
    JEL: H24 J30 M52
    Date: 2010–12
  5. By: Tim Siu-Tang Leung; Kazutoshi Yamazaki
    Abstract: This paper studies the valuation of a class of credit default swaps (CDSs) with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection buyer or seller the right to step-up, step-down, or cancel the CDS position. The pricing problem is formulated under a structural credit risk model based on Levy processes. This leads to the analytic and numerical studies of an optimal stopping problem subject to early termination due to default. In a general spectrally negative Levy model, we rigorously derive an analytic solution for the investor's optimal exercise strategy. This allows for instant computation of the credit spread under various specifications. Numerical examples are provided to examine the impacts of default risk and contractual features on the credit spread and exercise strategy.
    Date: 2010–12
  6. By: Rosella Castellano (University of Macerata); Roy Cerqueti (University of Macerata)
    Abstract: <p>This work deals with the problem of investors' irrational behavior and financial products' misperception. The theoretical analysis of the mechanisms driving wrong evaluations of investment performances is explored. The study is supported by the application of Monte Carlo simulations to the remarkable case of structured financial products. Some motivations explaining the popularity among retail investors of these complex financial instruments are also provided. Investors are assumed to compare the performances of different projects through stochastic dominance rules and, to pursue our scopes, a new definition of this decision criteria is introduced.</p>
    Date: 2010–12
  7. By: Marcos Minoru Hasegawa (Department of Economics, Universidad Católica del Norte)
    Abstract: The main goal of this research is to analyze the tax reduction policy impact in sector and regional level and its effectiveness in the Chilean Economy by means of a regional applied general equilibrium model (AGE). A static, deterministic and top-down AGE model, known as ORANIG model with regional extension was adapted for the Chilean Economy that was re-named as ORANICL model. Regional particularities among Chilean regions are relevant when designing policies are oriented to improve welfare and the economic performance at regional and national level in the taxing and spending function with special attention to the value aggregated tax (VAT). A 1% reduction on the VAT increases real GDP in 0.64% and the aggregated employment in 1.60%. In the regional level a 1% of VAT reduction increases the activity level by 0.58%, 0.64%, 0.76% and 0.68% for North, Central, Metropolitan region of Santiago and South regions respectively. By the same shock, employment increases by 1.47%, 1.49%, 1.71% and 1.52% for the same regions respectively. Results yielded by a 1% of VAT reduction seems to be not enough to refute the hypothesis that the centralism approach adopted for the Chilean government is the best policy design choice. Likewise, we show that a regional AGE model is a powerful tool for policy analysis for Chile.
    Keywords: Chile, Regional Economics, Tax Policy, AGE models
    Date: 2010–12
  8. By: Ioannou, Christos A; Nompelis, Ioannis
    Abstract: A model of adaptive learning and innovation is used to simulate the evolution of finite automata in the repeated Prisoner's Dilemma stage-game. The automata are prone to two types of errors: (a) implementation errors and (b) perception errors. The computational experiments incorporate different levels of errors in an effort to assess whether and how the distribution of outcomes and structures in the population changes. Under the proposed framework, the incorporation of implementation and perception errors is sufficient to reduce cooperative outcomes. In addition, the study identifies a threshold error-level. At and above the threshold error-level, the prevailing structures converge to the open-loop (history-independent) automaton Always-Defect. On the other hand, below the threshold, the prevailing structures are closed-loop (history-dependent) and diverse. The diversity thus impedes our inferential projections on the superiority of a particular automaton. Yet, the analysis still identifies some broad characteristics of the automata that work "reasonably well" in such environments. In particular, the complexity of the automata is decreasing in the probability of errors. Furthermore, the prevailing structures tend to exhibit low reciprocal cooperation and low tolerance to defections. These results show that the evolution of cooperative automata is considerably weaker than expected; and the change in the model is ecologically plausible: errors are common in strategic situations. <br><br> Keywords; Automata, Repeated Games, PrisonerÂ’s Dilemma, Bounded Rationality, Algorithms. <br><br> JEL Classification: C72, C80, C90
    Date: 2010–12–01
  9. By: Miao, Zhen; Beghin, John C.; Jensen, Helen H.
    Abstract: We extend the existing literature on food taxes targeting obesity. First, we incorporate the implicit substitution between sugar and fat nutrients implied by a complete food demand system and by conditioning on how food taxes affect total calorie intake. Second, we propose a methodology that accounts for the ability of consumers to substitute leaner low-fat and low-sugar items for rich food items within the same food group. This substitution is integrated into a demand system in addition to substitution among food groups. Simulations of a tax on added sugars show that the impact of the tax on consumption patterns is understated and the effect on welfare loss overstated when abstracting from this substitution within food groups.
    Keywords: discretionary calories; fat; food demand; health policy nutrition; low-fat; low-sugar substitutes; obesity; sugar; sweeteners; tax.
    JEL: I18 Q18
    Date: 2010–12–16
  10. By: Thomas DEMUYNCK
    Abstract: This research examines the computational complexity of two boundedly rational choice models that use multiple rationales to explain observed choice behavior. First, we show that the notion of rationalizability by K rationales as introduced by Kalai, Rubinstein, and Spiegler (2002) is NP-complete for K greater or equal to two. Second, we show that the question of sequential rationalizability by K rationales, introduced by Manzini and Mariotti (2007), is NP-complete for K greater or equal to three if choices are single valued, and that it is NP-complete for K greater or equal to one if we allow for multi-valued choice correspondences. Motivated by these results, we present two binary integer feasibility programs that characterize the two boundedly rational choice models and we compute their power. Finally, by using results from descriptive complexity theory, we explain why it has been so difficult to obtain `nice' characterizations for these models.
    Date: 2010–07
  11. By: Attilio Meucci
    Abstract: We propose a unified methodology to input non-linear views from any number of users in fully general non-normal markets, and perform, among others, stress-testing, scenario analysis, and ranking allocation. We walk the reader through the theory and we detail an extremely efficient algorithm to easily implement this methodology under fully general assumptions. As it turns out, no repricing is ever necessary, hence the methodology can be readily applied to books with complex derivatives. We also present an analytical solution, useful for benchmarking, which per se generalizes notable previous results. Code illustrating this methodology in practice is available at ileexchange/21307
    Date: 2010–12
  12. By: Olga Popova
    Abstract: This paper examines to what extent the distribution of votes and voting behavior of people with different employment status are affected by regional differences in corruption. Using data from the Russian Parliamentary (State Duma) Elections 1999 and 2003, I develop and estimate a SUR system of equations which takes into account specific features of the Russian electoral system. The paper distinguishes between hard and perceived measures of corruption and analyzes the effects of corruption on the voting shares of particular parties and on voters' participation in elections. Additionally, a series of Monte Carlo simulations are performed to analyze the effects of corruption on the distribution of votes.
    Date: 2010–12
  13. By: Roel Beetsma (University of Amsterdam); Alessandro Bucciol (University of Verona, University of Amsterdam)
    Abstract: We investigate numerically how indexation of funded pensions for inflation can be differ- entiated across the various groups of fund participants. The pension arrangement is modelled after the Dutch situation. While the aggregate welfare consequences are small, group-specific consequences are more substantial with the workers and future born losing and retirees bene- fitting from a shift away from uniform indexation. Those welfare shifts result from systematic redistribution of welfare rather than shifts in the benefit of risk sharing provided by the system.
    Keywords: indexation; funded pensions; welfare effects; pension buffers; stochastic simulations
    JEL: H55 I38 C61
    Date: 2010–12–14

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