nep-cmp New Economics Papers
on Computational Economics
Issue of 2011‒11‒01
twenty papers chosen by
Stan Miles
Thompson Rivers University

  1. An Artificial Neural Network technique for on-line hotel booking By Renato Betting; Francesco Mason; Marco Corazza; Giovanni Fasano
  2. Computations on Simple Games using RelView By Rudolf Berghammer; Agnieszka Rusinowska; Harrie De Swart
  3. Suitability of using technical indicators as potential strategies within intelligent trading systems By Evan Hurwitz; Tshilidzi Marwala
  4. Application of Chaotic Number Generators in Econophysics By Carmen Pellicer-Lostao; Ricardo Lopez-Ruiz
  5. The TERM model and its data base By Mark Horridge
  6. MMRF: Monash Multi-Regional Forecasting Model: A Dynamic Multi-Regional Model of the Australian Economy By Philip Adams; Janine Dixon; James Giesecke; Mark Horridge
  7. Computing Economic Equilibria by a Homotopy Method By Zoltan Pap
  8. From SHIW to IT-SILC: Construction and Representativeness of the New CAPP_DYN First-Year Population By Emanuele Ciani; Donatella fresu
  9. A model-free no-arbitrage price bound for variance options By J. Frederic Bonnans; Xiaolu Tan
  10. Calculating Variable Annuity Liability 'Greeks' Using Monte Carlo Simulation By Mark J. Cathcart; Steven Morrison; Alexander J. McNeil
  11. Pension reform, employment by age and long-run growth By Tim BUYSE; Freddy HEYLEN; Renaat VAN DE KERCKHOVE
  12. Estimation and Simulation of Earnings in IT-SILC By Emanuele Ciani; Marcello Morciano
  13. A Multi-Agent Model of Tax Evasion with Public Expenditure By Paolo Pellizzari; Dino Rizzi; ;
  14. Metaheuristic algorithms for the simultaneous slot allocation problem By Paola Pellegrini; Lorenzo Castelli; Raffaele Pesenti
  15. The Global Economic Effects of Pandemic Influenza By George Verikios; Maura Sullivan; Pane Stojanovski; James Giesecke; Gordon Woo
  16. Water trading, buybacks and drought in the Murray-Darling basin: lessons from economic modelling By Glyn Wittwer; Peter Dixon
  17. An Agent-Based Model of Centralized Institutions, Social Network Technology, and Revolution By Michael D. Makowsky; Jared Rubin
  18. Doubling U.S. Exports under the President's National Export Initiative: Is it realistic? Is it desirable? By Peter B. Dixon; Maureen T. Rimmer
  19. A framework for analyzing contagion in banking networks By Thomas R. Hurd; James P. Gleeson
  20. Optimal Piecewise Linear Income Taxation By Apps, Patricia; Long, Ngo Van; Rees, Ray

  1. By: Renato Betting (SG Application & Consulting); Francesco Mason (Department of Management, Università Ca' Foscari Venezia); Marco Corazza (Department of Economics, Università Ca' Foscari Venezia); Giovanni Fasano (Department of Management, Università Ca' Foscari Venezia)
    Abstract: In this paper the use of Artificial Neural Networks (ANNs) in on-line booking for hotel industry is investigated. The paper details the description, the modeling and the resolution technique of on-line booking. The latter problem is modeled using the paradigms of machine learning, in place of standard `If-Then-Else' chains of conditional rules. In particular, a supervised three layers MLP neural network is adopted, which is trained using information from previous customers' reservations. Performance of our ANN is analyzed: it behaves in a quite satisfactory way in managing the (simulated) booking service in a hotel. The customer requires single or double rooms, while the system gives as a reply the confirmation of the required services, if available. Moreover, we highlight that using our approach the system proposes alternative accommodations (from two days in advance to two days later with respect to the requested day), in case rooms or services are not available. Numerical results are given, where the effectiveness of the proposed approach is critically analyzed. Finally, we outline guidelines for future research.
    Keywords: On-line booking; hotel reservation; machine learning; supervised multilayer perceptron networks
    JEL: C80 C63
    Date: 2011–10
  2. By: Rudolf Berghammer (Institut für Informatik - Universitat Kiel); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Harrie De Swart (Faculteit Wijsbegeerte-Logica en taalanalyse - Universiteit van Tilburg)
    Abstract: Simple games are a powerful tool to analyze decision-making and coalition formation in social and political life. In this paper we present relational models of simple games and develop relational algorithms for solving some game-theoretic basic problems. The algorithms immediately can be transformed into the language of the Computer Algebra system RelView and, therefore, the system can be used to solve the problems and to visualize the results of the computations.
    Keywords: relational algebra ; RelView ; simple games
    Date: 2011
  3. By: Evan Hurwitz; Tshilidzi Marwala
    Abstract: The potential of machine learning to automate and control nonlinear, complex systems is well established. These same techniques have always presented potential for use in the investment arena, specifically for the managing of equity portfolios. In this paper, the opportunity for such exploitation is investigated through analysis of potential simple trading strategies that can then be meshed together for the machine learning system to switch between. It is the eligibility of these strategies that is being investigated in this paper, rather than application. In order to accomplish this, the underlying assumptions of each trading system are explored, and data is created in order to evaluate the efficacy of these systems when trading on data with the underlying patterns that they expect. The strategies are tested against a buy-and-hold strategy to determine if the act of trading has actually produced any worthwhile results, or are simply facets of the underlying prices. These results are then used to produce targeted returns based upon either a desired return or a desired risk, as both are required within the portfolio-management industry. Results show a very viable opportunity for exploitation within the aforementioned industry, with the Strategies performing well within their narrow assumptions, and the intelligent system combining them to perform without assumptions.
    Date: 2011–10
  4. By: Carmen Pellicer-Lostao; Ricardo Lopez-Ruiz
    Abstract: Agent-based models have demonstrated their power and flexibility in Econophysics. However their major challenge is still to devise more realistic simulation scenarios. The complexity of Economy makes appealing the idea of introducing chaotic number generators as simulation engines in these models. Chaos based number generators are easy to use and highly configurable. This makes them just perfect for this application.
    Date: 2011–10
  5. By: Mark Horridge
    Abstract: TERM (The Enormous Regional Model) provides a strategy for creating a "bottom-up" multi-regional CGE model which treats each region of a single country as a separate economy. This makes it a useful tool for examining the regional impacts of shocks that may be region-specific. TERM is designed to allow quick simulations with many regions, so allowing for models of large countries with 30 to 50 provinces, such as USA or China. TERM also offers a standard procedure for preparing a database which requires, in addition to a national input-output or use-supply table, a minimal amount of regional data. More regional data can be used if available.
    Keywords: Regional CGE
    JEL: C68 D58 R12 R13
    Date: 2011–07
  6. By: Philip Adams; Janine Dixon; James Giesecke; Mark Horridge
    Abstract: MMRF is a dynamic CGE model of Australia's six State and two Territory economies. MMRF is used extensively in contract research. Several features of MMRF make it an ideal tool for policy analysis, including: dynamics, a highly disaggregated regional and sectoral database, a national labour market, and detailed modelling of government financial statistics.
    Keywords: CGE modelling, dynamics, regional economics
    JEL: C68 D58 R13
    Date: 2010–12
  7. By: Zoltan Pap
    Abstract: In this paper the possibility of computing equilibrium in pure exchange and production economies by a homotopy method is investigated. The performance of the algorithm is tested on examples with known equilibria taken from the literature on general equilibrium models and numerical results are presented. In computing equilibria, economy will be specified by excess demand function.
    Date: 2011–10
  8. By: Emanuele Ciani; Donatella fresu
    Abstract: This paper describes the construction of the initial population in CAPP_DYN and illustrates the degree of representativeness of the Italian population in 2006. While the previous version of the model was constructed using the Bank of Italy Survey on Household Income and Wealth, the current version is based on the new ISTAT Survey on Income and Living Conditions. The first part of the paper discusses the reasons that led us to this switch. It also provides full details on the operations carried out on the original dataset in order to obtain a sample that can be used as the first year population of the Dynamic Simulation Model. In the second part of the paper, the demographic and socio-economic characteristics of the initial population sample are compared with information coming from other sources, such as administrative archives, national accounts and Labour Force Surveys. This exercise is crucial in assessing the capability of CAPP_DYN to represent the population's characteristics at the starting point
    Keywords: Dynamic micro-simulation; model validation; income distribution; pensions and social security
    JEL: C63 C81 D31 H55
    Date: 2011–07
  9. By: J. Frederic Bonnans (INRIA Saclay - Ile de France - Commands - INRIA - CNRS : UMR7641 - Polytechnique - X - ENSTA ParisTech, CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641); Xiaolu Tan (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641)
    Abstract: In the framework of Galichon, Henry-Labordère and Touzi, we consider the model-free no-arbitrage bound of variance option given the marginal distributions of the underlying asset. We first make some approximations which restrict the computation on a bounded domain. Then we propose a gradient projection algorithm together with a finite difference scheme to approximate the bound. The general convergence result is obtained. We also provide a numerical example on the variance swap option.
    Keywords: Variance option ; model-free price bound ; gradient projection algorithm.
    Date: 2011–10–21
  10. By: Mark J. Cathcart; Steven Morrison; Alexander J. McNeil
    Abstract: Hedging methods to mitigate the exposure of variable annuity products to market risks require the calculation of market risk sensitivities (or "Greeks"). The complex, path-dependent nature of these products means these sensitivities typically must be estimated by Monte Carlo simulation. Standard market practice is to measure such sensitivities using a "bump and revalue" method. As well as requiring multiple valuations, such approaches can be unreliable for higher order Greeks, e.g., gamma. In this article we investigate alternative estimators implemented within an advanced economic scenario generator model, incorporating stochastic interest-rates and stochastic equity volatility. The estimators can also be easily generalized to work with the addition of equity jumps in this model.
    Date: 2011–10
  11. By: Tim BUYSE (SHERPPA, Ghent University); Freddy HEYLEN (SHERPPA, Ghent University and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Renaat VAN DE KERCKHOVE (SHERPPA, Ghent University)
    Abstract: We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.
    Keywords: employment by age, endogenous growth, retirement, pension reform, overlapping generations
    JEL: E62 H55 J22 O41
    Date: 2011–06–30
  12. By: Emanuele Ciani; Marcello Morciano
    Abstract: This paper describes income distribution among workers in Italy using both the cross-sectional and panel component of IT-SILC. We highlight advantages and drawbacks of different econometric approaches, comparing standard OLS estimates with those obtained from Random Effects and Poisson Maximum Likelihood and assessing whether the results are sensitive to the different specification. Finally, we present the procedure in use in simulating future earnings in CAPP_DYN, the dynamic population-based microsimulation model of the CAPP
    Keywords: Microsimulation; Earnings; Lifetime; Inequality; IT-SILC
    JEL: D31 J31
    Date: 2011–07
  13. By: Paolo Pellizzari (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari); ;
    Abstract: We develop a model where heterogeneous agents maximize their individual utility based on (after tax) income and on the level of public expenditure (as in Cowell, Gordon, 1988). Agents are different in risk aversion and in the relative preference for public expenditure with respect to personal income. In each period, an agent can optimally conceal some income based on conjectures on the perceived probability of being subject to audits, the perceived level of public expenditure and the perceived amount of tax paid by other individuals. As far as the agent-based model is concerned, we assume that the Government sets the tax rate and the penalties, uses all the revenue to finance public expenditure (with no inefficiency) and fights evasion by controlling a (random) fraction of agents. We show that, through computational experiments based on micro-simulations, stable configurations of tax rates and public expenditure endogenously form in this case as well. In such equilibrium-like situations we find: • a positive relationship between the tax rate and evasion still arises. • tax compliance mainly depends on the distribution of personal features like risk-aversion and the degree of preference for public expenditure. • an endogenous level of tax evasion that is almost not affected by reasonable rates of control. A proper choice of the tax rate results instead in voluntary partial compliance. • the enforcement of higher compliance rates requires unrealistic and costly large-scale audits.
    Keywords: Tax evasion, public expenditure, agent-based models
    JEL: H26 H40 C63
    Date: 2011
  14. By: Paola Pellegrini (IRIDIA-CoDE, Universite Libre de Bruxelles); Lorenzo Castelli (Dipartimento di Ingegneria Industriale e dell'Informazione, Università di Trieste); Raffaele Pesenti (Department of Management, Università Ca' Foscari Venezia)
    Abstract: In this paper, we formalize the simultaneous slot allocation problem. It is an extension of the problem currently tackled for allocating airport slots: it deals with all airports simultaneously and it enforces the respect of airspace sector capacities. By solving this novel problem, the system may overcome some major inefficiencies that characterize the current slot allocation process. We tackle the simultaneous slot allocation problem with two algorithms based on metaheuristics, namely Iterated Local Search and Variable Neighborhood Search, and with an integer linear programming model: for each of these three algorithms, we allow a fixed computation time, and we take the best solution found during that time as the final solution. We compare these algorithms on randomly generated instances, and we show that, when small instances are to be tackled, metaheuristics are competitive with the exact model. When medium or large instances are to be tackled, the exact model suffers some major issues in terms of memory and computation time requirements. Metaheuristics, instead, can deal with very large instances, achieving very high quality results.
    Keywords: Air Traffic Management; Airport slot allocation; Metaheuristics; Integer linear programming
    Date: 2011–10
  15. By: George Verikios; Maura Sullivan; Pane Stojanovski; James Giesecke; Gordon Woo
    Abstract: We analyse the global economic effects of two influenza pandemics that represent extremes along the virulence-infectiousness continuum of possible pandemics: a high virulence-low infectiousness event and a low virulence-high infectiousness event. We do this by applying results from a susceptible-infected-recovered epidemiological model to a detailed, quarterly computable general equilibrium model. Our findings indicate that global economic activity will be more strongly affected by a pandemic with high infection rates rather than high virulence rates, all else being equal. At the regional level, regions with a higher degree of economic integration with the world economy will be affected more strongly than less integrated regions.
    Keywords: computable general equilibrium, pandemic influenza, quarterly periodicity
    JEL: C68 E37 I18
    Date: 2011–10
  16. By: Glyn Wittwer; Peter Dixon
    Abstract: TERM-H2O, a dynamic, multi-regional model has become a useful tool for analysing water policy issues in the Murray-Darling basin. Available data indicate that farm factor mobility has been an important avenue of adjustment to sharply reduced water availability during drought. The regional impacts of water buybacks in the basin are much smaller than otherwise as a consequence of this mobility.
    Keywords: CGE modelling, irrigation, agricultural economics, regional economies
    JEL: Q11 Q15
    Date: 2011–09
  17. By: Michael D. Makowsky (Department of Economics, Towson University); Jared Rubin (Department of Economics, Chapman University)
    Abstract: Recent uprisings in the Arab world consist of individuals revealing vastly different preferences than were expressed prior to the uprisings. This paper sheds light on the general mechanisms underlying large-scale social and institutional change. We employ an agent-based model to test the impact of authority centralization and social network technology on preference revelation and falsification, social protest, and institutional change. We find that the amount of social and institutional change is decreasing with authority centralization in simulations with low network range but is increasing with authority centralization in simulations with greater network range. The relationship between institutional change and social shocks is not linear, but rather is characterized by sharp discontinuities. The threshold at which a shock can “tip” a system towards institutional change is decreasing with the geographic reach of citizen social networks. Farther reaching social networks reduce the robustness and resilience of central authorities to change. This helps explain why highly centralized regimes frequently attempt to restrict information flows via the media and Internet. More generally, our results highlight the role that information and communication technology can play in triggering cascades of preference revelation and revolutionary activity in varying institutional regimes.
    Keywords: preference falsification, revolution, protest, network technology, agent-based model.
    JEL: C63 Z13 D83 D85 D71 H11
    Date: 2011–10
  18. By: Peter B. Dixon; Maureen T. Rimmer
    Abstract: President Obama's National Export Initiative is targeted at doubling U.S. exports between 2010 and 2015. We apply USAGE to quantify what the NEI would need to do to foreign import-demand curves and domestic export-supply curves to achieve this target. USAGE is a dynamic economy-wide model of the U.S. incorporating recession-relevant factor market specifications including excess capacity and wage/labor-demand elasticities that vary with the level of employment. In our central simulation, export-promotion policies compatible with the President's target reduce the cost of the current recession from about 70 million one-year jobs for the period 2008-2020 to 45 million jobs.
    Keywords: Export promotion National Export Initiative U S recession Factor-market specification Excess capacity
    JEL: E17 C68 E62 E65 F16
    Date: 2011–04
  19. By: Thomas R. Hurd; James P. Gleeson
    Abstract: A probabilistic framework is introduced that represents stylized banking networks and aims to predict the size of contagion events. In contrast to previous work on random financial networks, which assumes independent connections between banks, the possibility of disassortative edge probabilities (an above average tendency for small banks to link to large banks) is explicitly incorporated. We give a probabilistic analysis of the default cascade triggered by shocking the network. We find that the cascade can be understood as an explicit iterated mapping on a set of edge probabilities that converges to a fixed point. A cascade condition is derived that characterizes whether or not an infinitesimal shock to the network can grow to a finite size cascade, in analogy to the basic reproduction number $R_0$ in epidemic modeling. It provides an easily computed measure of the systemic risk inherent in a given banking network topology. An analytic formula is given for the frequency of global cascades, derived from percolation theory on the random network. Two simple examples are used to demonstrate that edge-assortativity can have a strong effect on the level of systemic risk as measured by the cascade condition. Although the analytical methods are derived for infinite networks, large-scale Monte Carlo simulations are presented that demonstrate the applicability of the results to finite-sized networks. Finally, we propose a simple graph theoretic quantity, which we call "graph-assortativity", that seems to best capture systemic risk.
    Date: 2011–10
  20. By: Apps, Patricia (University of Sydney); Long, Ngo Van (McGill University); Rees, Ray (University of Munich)
    Abstract: Given its significance in practice, piecewise linear taxation has received relatively little attention in the literature. This paper offers a simple and transparent analysis of its main characteristics. We fully characterize optimal tax parameters for the cases in which budget sets are convex and nonconvex respectively. A numerical analysis of a discrete version of the model shows the circumstances under which each of these cases will hold as a global optimum. We find that, given plausible parameter values and wage distributions, the globally optimal tax system is convex, and marginal rate progressivity increases with rising inequality.
    Keywords: piecewise linear, income, taxation
    JEL: H21 H31 J22
    Date: 2011–10

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