nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒02‒01
eleven papers chosen by
Stan Miles
Thompson Rivers University

  1. The Economic Consequences of Shifting Away From Nuclear Energy By Ken Itakura
  2. Impacts of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibrium Model By Qin Bao; Ling Tang; ZhongXiang Zhang; Han Qiao; Shouyang Wang
  3. An Evaluation of Overseas Oil Investment Projects under Uncertainty Using a Real Options Based Simulation Model By Lei Zhu; ZhongXiang Zhang; Ying Fan
  4. Leverage, liquidity and crisis: A simulation study By Antoine Godin; Stephen Kinsella
  5. A Pareto-metaheuristic for a bi-objective winner determination problem in a combinatorial reverse auction By Buer, Tobias; Kopfer, Herbert
  6. Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany By Adamos Adamou; Sofronis Clerides; Theodoros Zachariadis
  7. Learning generates Long Memory By Guillaume Chevillon; Sophocles Mavroeidis
  8. Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading By Alexander Brauneis; Michael Loretz; Roland Mestel; Stefan Palan
  9. Global market shocks and poverty in Vietnam: the case of rice By Ian Coxhead; Vu Hoang Linh; Le Dong Tam
  10. A Quantile Monte Carlo approach to measuring extreme credit risk By David E Allen; R.R Boffey; R. J. Powell
  11. Discounted Stochastic Games with Voluntary Transfers By Sebastian Kranz

  1. By: Ken Itakura (Ken Itakura Associate Professor, Faculty of Economics, Nagoya City University)
    Abstract: In the aftermath of the devastating nuclear fallout in Japan, there has been a harsh debate surrounding the role of nuclear energy in electricity generation. A changing role will have economic consequences on production, consumption, and international trade. To quantity these effects, we implemented simulations with a global CGE model and database. The simulation results show that reductions in the use of nuclear for electric power generation may have profound negative impacts on the Japanese economy. A nuclear accident at the Fukushima power plant changed the future direction of Japanese energy policy as well as Asian energy policy. These policies are integrated via technological, financial, and nuclear energy knowledge sharing activities within the region. The main objective of this policy brief is to shed some light on the following question: what would be the economic consequences of altering the source of power generation from nuclear to fossil fuels? This Japanese case study offers policy implications for both Japan and the region as a whole.
    Date: 2011–12–01
  2. By: Qin Bao (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences); Ling Tang (Institute of Policy and Management, Chinese Academy of Sciences, Graduate University of Chinese Academy of Sciences); ZhongXiang Zhang (Institute of Policy and Management, Chinese Academy of Sciences, Center for Energy Economics and Strategy Studies; and Research Institute for the Changing Global Environment, Fudan University, Research Program, East-West Center); Han Qiao (College of Economics, Qingdao University, Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences); Shouyang Wang (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences)
    Abstract: Carbon-based border tax adjustments (BTAs) have recently been proposed by some OECD countries to level the carbon playing field and target major emerging economies. This paper applies a multi-sector dynamic computable general equilibrium (CGE) model to estimate the impacts of the BTAs implemented by US and EU on China’s sectoral carbon emissions. The results indicate that BTAs will cut down export prices and transmit the effects to the whole economy, reducing sectoral output-demands from both supply side and demand side. On the supply side, sectors might substitute away from exporting toward domestic market, increasing sectoral supply; while on the demand side, the domestic income may be strikingly cut down due to the decrease in export price, decreasing sectoral demand. Furthermore, such shrinkage of demand may similarly reduce energy prices, which leads to energy substitution effect and somewhat stimulates carbon emissions. Depending on the relative strength of the output-demand effect and energy substitution effect, sectoral carbon emissions and energy demands will vary across sectors, with increasing, decreasing or moving in a different direction. These results suggest that an incentive mechanism to encourage the widespread use of environment-friendly fuels and technologies will be more effective.
    Keywords: Border Carbon Tax Adjustments, Computable General Equilibrium Model, Carbon Emissions
    JEL: D58 F18 Q43 Q48 Q52 Q54 Q56 Q58
    Date: 2011–12
  3. By: Lei Zhu (Center for Energy and Environmental Policy Research, Institute of Policy and Management, Chinese Academy of Sciences); ZhongXiang Zhang (Research Program, East-West Center); Ying Fan (Center for Energy and Environmental Policy Research, Institute of Policy and Management, Chinese Academy of Sciences)
    Abstract: This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, our model has incorporated not only the uncertainties of oil price and investment cost but also the uncertainties of exchange rate and investment environment. These unique features have enabled our model to be best equipped to evaluate the value of oil overseas investment projects of three oil field sizes (large, medium, small) and under different resource tax systems (royalty tax and production sharing contracts). In our empirical setting, we have selected China as an investor country and Indonesia as an investee country as a case study. Our results show that the investment risks and project values of small sized oil fields are more sensitive to changes in the uncertainty factors than the large and medium sized oil fields. Furthermore, among the uncertainty factors considered in the model, the investment risk of overseas oil investment may be underestimated if no consideration is given of the impacts of exchange rate and investment environment. Finally, as there is an important trade-off between oil resource investee country and overseas oil investor, in medium and small sized oil investment negotiation the oil company should try to increase the cost oil limit in production sharing contract and avoid the term of a windfall profits tax to reduce the investment risk of overseas oil fields.
    Keywords: Overseas Oil Investment, Project Value, Real Options, Least Squares Monte-Carlo
    JEL: Q41 Q43 Q48 G31 O13 O22 C63
    Date: 2011–11
  4. By: Antoine Godin; Stephen Kinsella
    Abstract: We study the interactions of banks and ?rms within a leverage cycle to understand how capacity utilisation and capital investment interact with funding costs, leverage by banks and ?rms, and liquidity. We show in a simulation study that when ?rms can grow and die by becoming insolvent, and when banks can grow and die as their bad debts increase to unsustainable levels, the real economy cycles around a leverage cycle.
    Keywords: Leverage, capital investment, capacity utilization, simulation modeling.
    JEL: E22 E32 E37
    Date: 2012
  5. By: Buer, Tobias; Kopfer, Herbert
    Abstract: The bi-objective winner determination problem (2WDP-SC) of a combinatorial procurement auction for transport contracts comes up to a multi-criteria set covering problem. We are given a set B of bundle bids. A bundle bid b in B consists of a bidding carrier c_b, a bid price p_b, and a set tau_b of transport contracts which is a subset of the set T of tendered transport contracts. Additionally, the transport quality q_t,c_b is given which is expected to be realized when a transport contract t is executed by a carrier c_b. The task of the auctioneer is to find a set X of winning bids (X is subset of B), such that each transport contract is part of at least one winning bid, the total procurement costs are minimized, and the total transport quality is maximized. This article presents a metaheuristic approach for the 2WDP-SC which integrates the greedy randomized adaptive search procedure, large neighborhood search, and self-adaptive parameter setting in order to find a competitive set of non-dominated solutions. The procedure outperforms existing heuristics. Computational experiments performed on a set of benchmark instances show that, for small instances, the presented procedure is the sole approach that succeeds to find all Pareto-optimal solutions. For each of the large benchmark instances, according to common multi-criteria quality indicators of the literature, it attains new best-known solution sets.
    Keywords: Pareto optimization; multi-criteria winner determination; combinatorial auction; GRASP; LNS
    JEL: R40 C63 C44 C61
    Date: 2012–01–19
  6. By: Adamos Adamou (University of Cyprus); Sofronis Clerides (University of Cyprus and CEPR); Theodoros Zachariadis (Cyprus University of Technology)
    Abstract: Vehicle taxation based on CO2 emissions is increasingly being adopted worldwide in order to shift consumer purchases to low-carbon cars, yet little is known about the effectiveness and overall economic impact of these schemes. We focus on feebate schemes, which impose a fee on high-carbon vehicles and give a rebate to purchasers of low-carbon automobiles. e estimate a discrete choice model of demand for automobiles in Germany and simulate the impact of alternative feebate schemes on emissions, consumer welfare, public revenues and firm profits. The analysis shows that a well-designed scheme can lead to emission reductions without reducing overall welfare.
    Keywords: CO2 emissions, German Automobile Market, Feebates, Carbon Taxation
    JEL: Q5 Q53 Q58
    Date: 2011–12
  7. By: Guillaume Chevillon (ESSEC Business School - ESSEC Business School); Sophocles Mavroeidis (Chercheur Indépendant - Aucune)
    Abstract: We consider a prototypical representative-agent forward-looking model, and study the low frequency variability of the data when the agent's beliefs about the model are updated through linear learning algorithms. We nd that learning in this context can generate strong persistence. The degree of persistence depends on the weights agents place on past observations when they update their beliefs, and on the magnitude of the feedback from expectations to the endogenous variable. When the learning algorithm is recursive least squares, long memory arises when the coe cient on expectations is su ciently large. In algorithms with discounting, long memory provides a very good approximation to the low-frequency variability of the data. Hence long memory arises endogenously, due to the self-referential nature of the model, without any persistence in the exogenous shocks. This is distinctly di erent from the case of rational expectations, where the memory of the endogenous variable is determined exogenously. Finally, this property of learning is used to shed light on some well-known empirical puzzles.
    Keywords: Learning ; Long Memory ; Persistence ; Present-Value Models
    Date: 2011–11–24
  8. By: Alexander Brauneis (Institute of Financial Management, Alpen-Adria-University Klagenfurt); Michael Loretz (Institute of Banking and Finance, Karl-Franzens-University Graz); Roland Mestel (Institute of Banking and Finance, Karl-Franzens-University Graz); Stefan Palan (Institute of Banking and Finance, Karl-Franzens-University Graz)
    Abstract: Uncertainty about long-term climate policy is a major driving force in the evolution of the carbon market price. Since this price enters the investment decision process of regulated firms, this uncertainty increases the cost of capital for investors and might deter invest-ments into new technologies at the company level. We apply a real options-based approach to assess the impact of climate change policy in the form of a constant or growing price floor on investment decisions of a single firm in a competitive environment. This firm has the opportunity to switch from a high-carbon “dirty” technology to a low-carbon “clean” technology. Using Monte Carlo simulation and dynamic programming techniques for real market data, we determine the optimal CO2 price floor level and growth rate in order to induce investments into the low-carbon technology. We show these findings to be robust to a large variety of input parameter settings.
    Keywords: Carbon price, price floor, technological change, investment decision, real option approach
    JEL: D81 O38 Q55
    Date: 2011–10
  9. By: Ian Coxhead (Department of Agricultural and Applied Economics, University of Wisconsin-Madison); Vu Hoang Linh (University of Economics and Business - Vietnam National University); Le Dong Tam (Department of Agricultural and Applied Economics, University of Wisconsin-Madison)
    Abstract: World food prices have experienced dramatic increases in recent years. These ?shocks? affect food importers and exporters alike. Vietnam is a major exporter of rice, and rice is also a key item in domestic production, employment and consumption. Accordingly, rice price shocks from the world market have general equilibrium impacts and as such, their implications for household welfare are not known ex ante. In this paper we present a framework for understanding the direct and indirect welfare effects of a global market shock of this kind. We quantify transmission of the shock from global indicator prices to domestic markets. Then we use an applied general equilibrium model to simulate the economic effects of the price changes. A recursive mapping to a nationally representative household living standards survey permits us to identify in detail the ceteris paribus effects of the shock on household incomes and welfare. In this analysis, interregional and intersectoral labor market adjustments emerge as key channels transmitting the effects of global price shocks across sectors and among households.
    Keywords: Vietnam, rice, poverty, labor mobility, general equilibrium, microsimulation.
    JEL: I32 D58 Q17
    Date: 2012
  10. By: David E Allen (School of Accounting Finance & Economics, Edith Cowan University); R.R Boffey (School of Accounting Finance & Economics, Edith Cowan University); R. J. Powell (School of Accounting Finance & Economics, Edith Cowan University)
    Abstract: We apply a novel Quantile Monte Carlo (QMC) model to measure extreme risk of various European industrial sectors both prior to and during the Global Financial Crisis (GFC). The QMC model involves an application of Monte Carlo Simulation and Quantile Regression techniques to the Merton structural credit model. Two research questions are addressed in this study. The first question is whether there is a significant difference in distance to default (DD) between the 50% and 95% quantiles as measured by the QMC model. A substantial difference in DD between the two quantiles was found. The second research question is whether relative industry risk changes between the pre-GFC and GFC periods at the extreme quantile. Changes were found with the worst deterioration experienced by Energy, Utilities, Consumer Discretionary and Financials; and the strongest improvement shown by Telecommunication, IT and Consumer goods. Overall, we find a significant increase in credit risk for all sectors using this model as compared to the traditional Merton approach. These findings could be important to banks and regulators in measuring and providing for credit risk in extreme circumstances.
    Keywords: Asset Selection, Factor Model, DEA, Quantile Regression
    Date: 2011–02
  11. By: Sebastian Kranz (Dept. of Economics, University of Bonn, Institute for Energy Economics, University of Cologne)
    Abstract: This paper studies discounted stochastic games perfect or imperfect public monitoring and the opportunity to conduct voluntary monetary transfers. We show that for all discount factors every public perfect equilibrium payoff can be implemented with a simple class of equilibria that have a stationary structure on the equilibrium path and optimal penal codes with a stick and carrot structure. We develop algorithms that exactly compute or approximate the set of equilibrium payoffs and find simple equilibria that implement these payoffs.
    Keywords: Stochastic games, Monetary transfers, Computation, Imperfect public monitoring, Public perfect equilibria
    JEL: C73 C61 C63
    Date: 2012–01

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