nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒07‒08
twenty-one papers chosen by
Stan Miles
Thompson Rivers University

  1. Multi-Item Vickery-English-Dutch Auctions By Andersson, Tommy; Erlanson, Albin
  2. Bayesian modelling of bacterial growth for multiple populations By Ana P. Palacios; J. Miguel Marín; Emiliano Quinto; Michael P. Wiper
  3. Economics of Traceability for Mitigation of Food Recall Costs By Resende-Filho, Moises de Andrade; Buhr, Brian L.
  4. On the role of backauditing for tax evasion in an agent-based Econophysics model By G. Seibold; M. Pickhardt
  5. Numerical methods for the quadratic hedging problem in Markov models with jumps By Carmine De Franco; Peter Tankov; Xavier Warin
  6. Quasi-Monte Carol Methods for the Heston Model By Jan Baldeaux; Dale Roberts
  7. Alternative Designs for Tariffs on Embodied Carbon: A Global Cost-Effectiveness Analysis By Christoph Böhringer; Brita Bye; Taran Fæhn; Knut Einar Rosendahl
  8. CGE modeling of market access in services By Christen, Elisabeth; Francois, Joseph; Hoekman, Bernard
  9. The Impact of Population Ageing on House Prices: A Micro-simulation Approach By Chen, Yu; Gibb, Kenneth D.; Leishman, Chris; Wright, Robert E.
  10. Policy impacts under alternative land market regimes in rural China By Kleinwechter, Ulrich; Grethe, Harald
  11. The system-wide impacts of the external benefits to higher education on the Scottish economy: An exploratory “micro-to-macro†approach By Kristinn Hermannsson; Katerina Lisenkova; Patrizio Lecca; Peter McGregor; Kim Swales
  12. The Impact of Volatility in Bioenergy Investments: A Real Options Approach By Moeller, Lioudmila; Balmann, Alfons; Kataria, Karin
  13. Impact of Productive Safety Net Financed Livestock Credit on Food Security and Poverty Status of Rural Households in Ethiopia: A Simulation Approach By Bogale, Ayalneh; Genene, Wubshet
  14. Do Dynamic Provisions Enhance Bank Solvency and Reduce Credit Procyclicality? A Study of the Chilean Banking System By Jorge A. Chan-Lau
  15. Fisheries Management Implications of Intrinsic Under Identification of Growth Equation Parameters By Carson, Richard T; Murray, Jason H.
  16. A p-median problem with distance selection By Stefano Benati; Sergio García
  17. Unter welchen Bedingungen fördert die „Riester-Förderung“? Eine theoretische Analyse unter simultaner Einbeziehung von Kosten- und Steuereffekten By Silvana Stahl; Stefan Stahl; Philipp Kasch
  18. Impacts of climate change on Brazilian agriculture: an analysis of irrigation as an adaptation strategy By Cunha, Denis Antonio da; Coelho, Alexandre Braganca; Feres, Jose; Braga, Marcelo Jose
  19. Inventory Management with Partially Observed Nonstationary Demand By Erhan Bayraktar; Mike Ludkovski
  20. International equity and bond positions in a DSGE model with variety risk in consumption By Hamano Masashige
  21. Asymptotics for Exponential Levy Processes and their Volatility Smile: Survey and New Results By Leif Andersen; Alexander Lipton

  1. By: Andersson, Tommy (Department of Economics, Lund University); Erlanson, Albin (Department of Economics, Lund University)
    Abstract: Assuming that bidders wish to acquire at most one item, this paper defines a polynomial time multi-item auction that locates the VCG prices in a finite number of iterations for any given starting prices. This auction is called the Vickrey-English-Dutch auction and it contains the Vickrey-English auction (J.K. Sankaran, Math. Soc. Sci. 28:143-150, 1994) and the Vickrey-Dutch auction (D. Mishra and D. Parkes, Games Econ. Behav. 66:326-347, 2009) as special cases. Several properties of this iterative auction are provided. It is, for example, demonstrated that the number of iterations from the starting prices to the VCG prices can be calculated using a measure based on the Chebyshev metric. By means of numerical experiments, it is showed that when the auctioneer knows the bidders' value distributions, the Vickrey-English-Dutch auction is weakly faster than the Vickrey-English auction and the Vickrey-Dutch auction in 89 percent and 99 percent, respectively, of the investigated problems.
    Keywords: Polynomial time algorithms; Multi-item auctions; Unit-demand bidders; Iterations
    JEL: C71 C78 D63 D71 D78
    Date: 2012–06–21
  2. By: Ana P. Palacios; J. Miguel Marín; Emiliano Quinto; Michael P. Wiper
    Abstract: Bacterial growth models are commonly used for the prediction of microbial safety and the shelf life of perishable foods. Growth is affected by several environmental factors such as temperature, acidity level and salt concentration. In this study, we develop two models to describe bacterial growth for multiple populations under both equal and different environmental conditions. Firstly, a semi-parametric model based on the Gompertz equation is proposed. Assuming that the parameters of the Gompertz equation may vary in relation to the running conditions under which the experiment is performed, we use feed forward neural networks to model the influence of these environmental factors on the growth parameters. Secondly, we propose a more general model which does not assume any underlying parametric form for the growth function. Thus, we consider a neural network as a primary growth model which includes the influencing environmental factors as inputs to the network. One of the main disadvantages of neural networks models is that they are often very difficult to tune which complicates fitting procedures. Here, we show that a simple, Bayesian approach to fitting these models can be implemented via the software package WinBugs. Our approach is illustrated using real experimental Listeria Monocytogenes growth data.
    Keywords: Bacterial population modeling, Growth functions, Neural networks, Bayesian inference
    Date: 2012–06
  3. By: Resende-Filho, Moises de Andrade; Buhr, Brian L.
    Abstract: We develop conceptual and process simulation models to determine the probability of a recall and predict its size. We compare the costs of recalls with and without traceability for a ten year planning horizon by simulating the expected recalls caused by Escherichia coli O157:H7 contamination for ground beef produced at one plant. As the costs of implementing a traceability system are not available, we calculate only the direct costs savings by the use of traceability. Results suggest that for a ten year period the value of traceability is about $263 million, and that the cost saving increase with the shelf life of the product. Additionally, improved quality control measures at each stage of production appear to be substitutes for traceability, but under some circumstances may serve as complements. As improved cost parameters and uses of information systems become more standardized, our models can be adapted so to simulate alternative costs/values for traceability and, therefore, support firms and policy makers´ decisions.
    Keywords: Traceability, Food Recalls, Quality Controls, Risk Assessment and Modelling, Agribusiness, Livestock Production/Industries, Production Economics, Risk and Uncertainty, C15, D81, L15, L66, M11,
    Date: 2012–06–25
  4. By: G. Seibold; M. Pickhardt
    Abstract: We investigate an inhomogeneous Ising model in the context of tax evasion dynamics where different types of agents are parametrized via local temperatures and magnetic fields. In particular, we analyse the impact of backauditing and endogenously determined penalty rates on tax compliance. Both features contribute to a microfoundation of agent-based econophysics models of tax evasion.
    Date: 2012–06
  5. By: Carmine De Franco; Peter Tankov; Xavier Warin
    Abstract: We develop algorithms for the numerical computation of the quadratic hedging strategy in incomplete markets modeled by pure jump Markov process. Using the Hamilton-Jacobi-Bellman approach, the value function of the quadratic hedging problem can be related to a triangular system of parabolic partial integro-differential equations (PIDE), which can be shown to possess unique smooth solutions in our setting. The first equation is non-linear, but does not depend on the pay-off of the option to hedge (the pure investment problem), while the other two equations are linear. We propose convergent finite difference schemes for the numerical solution of these PIDEs and illustrate our results with an application to electricity markets, where time-inhomogeneous pure jump Markov processes appear in a natural manner.
    Date: 2012–06
  6. By: Jan Baldeaux (Finance Discipline Group, UTS Business School, University of Technology, Sydney); Dale Roberts (Australian National University)
    Abstract: In this paper, we discuss the application of quasi-Monte Carlo methods to the Heston model. We base our algorithms on the Broadie-Kaya algorithm, an exact simulation scheme for the Heston model. As the joint transition densities are not available in closed-form, the Linear Transformation method due to Imai and Tan, a popular and widely applicable method to improve the effectiveness of quasi-Monte Carlo methods, cannot be employed in the context of path-dependent options when the underlying price process follows the Heston model. Consequently, we tailor quasi-Monte Carlo methods directly to the Heston model. The contributions of the paper are threefold: We firstly show how to apply quasi-Monte Carlo methods in the context of the Heston model and the SVJ model, secondly that quasi-Monte Carlo methods improve on Monte Carlo methods, and thirdly how to improve the effectiveness of quasi-Monte Carlo methods by using bridge constructions tailored to the Heston and SVJ models. Finally, we provide some extensions for computing greeks, barrier options, multidimensional and multi-asset pricing, and the 3=2 model.
    Keywords: quasi-Monte Carlo methods; computational ?nance; stochastic volatility; path-dependent derivatives; bridge sampling; exact simulation
    Date: 2012–06–01
  7. By: Christoph Böhringer (Department of Economics University of Oldenburg, Germany); Brita Bye (Statistics Norway, Oslo, Norway); Taran Fæhn (Statistics Norway, Oslo, Norway); Knut Einar Rosendahl (Statistics Norway, Oslo, Norway)
    Abstract: In the absence of effective world-wide cooperation to curb global warming, import tariffs on embodied carbon have been proposed as a potential supplement to unilateral emissions pricing. We consider alternative designs for such tariffs, and analyze their effects on global welfare within a multi-region, multi-sector computable general equilibrium (CGE) model of global trade and energy. Our analysis suggests that the most cost-efficient policy could be region-specific tariffs on all products, based on direct plus electricity emissions. In the end, however, the potential cost savings through carbon tariffs must be weighed against the administrative costs as well as legal issues and political considerations
    Keywords: carbon leakage, embodied carbon, border tariffs
    JEL: Q43 Q54 H2 D61
    Date: 2012–06
  8. By: Christen, Elisabeth; Francois, Joseph; Hoekman, Bernard
    Abstract: This paper examines how the applied multi-sector computable general equilibrium (CGE) literature has moved into quantication of the impacts of greater market access for services. This includes discussion of multi-sector linkages to the service sector, as well both measuring barriers to trade and investment (generally with a mix of firm surveys, price comparisons, and econometrics), and how changes in these barriers, however measured, have been implemented in the CGE literature. Three challenges are highlighted. The first is identification of how trade in services takes place and how market access is therefore affected by policy. The second is to find data sufficiently robust for modeling purposes. The third, linked to the data problem, is to quantify the barriers to be examined. Significant progress has been made in modeling foreign direct investment and linking this to productivity, which turns out to be important. The paper also provides an example of modeling productivity linkages to openness and domestic regulation, with an applied CGE model of Italy. This illustrates cross-sector linkages and the integration of economic data and policy measures to define service sector experiments. Priorities for future research include better modeling of market structure, the linkages between sectors and the complementarities between different modes of supplying services.
    Keywords: Economic Theory&Research,Markets and Market Access,Emerging Markets,Free Trade,Trade and Services
    Date: 2012–06–01
  9. By: Chen, Yu (University of Glasgow); Gibb, Kenneth D. (University of Glasgow); Leishman, Chris (Heriot-Watt University, Edinburgh); Wright, Robert E. (University of Strathclyde)
    Abstract: This paper attempts to estimate the impact of population ageing on house prices. There is considerable debate about whether population ageing puts downwards or upwards pressure on house prices. The empirical approach differs from earlier studies of this relationship, which are mainly regression analyses of macro time-series data. A micro-simulation methodology is adopted that combines a macro-level house price model with a micro-level household formation model. The case study is Scotland, a country that is expected to age rapidly in the future. The parameters of the household formation model are estimated with panel data from the British Household Panel Survey covering the period 1999-2008. The estimates are then used to carry out a set of simulations. The simulations are based on a set of population projections that represent a considerable range in the rate of population ageing. The main finding from the simulations is that population ageing – or more generally changes in age structure – is not likely a main determinant of house prices, at least in Scotland.
    Keywords: population ageing, house prices, Scotland
    JEL: J1 R2
    Date: 2012–06
  10. By: Kleinwechter, Ulrich; Grethe, Harald
    Abstract: In this paper we apply a simulation model of a village economy in Guizhou province, China, to assess impacts of trade reform at the household and the village level under alternative land market regimes. Putting special emphasis on the modeling of household migration a trade reform scenario is simulated with and without the existence of a land rental market in the village. Significant impacts of the land market on the policy outcome regarding household production, income and welfare are found. The possibility to trade land within the village leads to increasing specialization into agriculture and migration among the households as a response to the policy shock. In a situation with a land market, incomes of households which expand agricultural production are less negatively affected by trade reform than incomes of households which migration more. At the village level, a land market does not influence the poverty outcome of the reform but reduces its inequality enhancing impact. Village migration and exports of agricultural outputs increase.
    Keywords: China, Regional Migration, Agricultural Household Model, Land Markets, Poverty, Inequality, Computable General Equilibrium, Agricultural and Food Policy, Community/Rural/Urban Development, Consumer/Household Economics, Food Security and Poverty, International Relations/Trade, Land Economics/Use, Q12, Q15, C68, R23,
    Date: 2012
  11. By: Kristinn Hermannsson (Fraser of Allander Institute, Department of Economics, University of Strathclyde); Katerina Lisenkova (Fraser of Allander Institute, Department of Economics, University of Strathclyde); Patrizio Lecca (Fraser of Allander Institute, Department of Economics, University of Strathclyde); Peter McGregor (Fraser of Allander Institute, Department of Economics, University of Strathclyde); Kim Swales (Fraser of Allander Institute, Department of Economics, University of Strathclyde)
    Abstract: The private market benefits of education, i.e. the wage premia of graduates, are widely studied at the micro level, although the magnitude of their macroeconomic impact is disputed. However, there are additional benefits of education, which are less well understood but could potentially drive significant macroeconomic impacts. Following the taxonomy of McMahon (2009) we identify four different types of benefits of education. These are: private market benefits (wage premia); private non market benefits (own health, happiness, etc.); external market benefits (productivity spillovers; and external non-market benefits (crime rates, civic society, democratisation, etc.). Drawing on available microeconometric evidence we use a micro-to-macro simulation approach (Hermannsson et al, 2010) to estimate the macroeconomic impacts of external benefits of higher education. We explore four cases: technology spillovers from HEIs; productivity spillovers from more skilled workers in the labour market; reduction in property crime; and the potential overall impact of external and private non-market benefits. Our results suggest that the external economic benefits of higher education could potentially be very large. However, given the dearth of microeconomic evidence this result should be seen as tentative. Our aim is to illustrate the links from education to the wider economy in principle and encourage further research in the field.
    Keywords: Supply side impact; higher education institutions; computable general equilibrium model; Social and external benefits; Crime
    JEL: I23 E17 D58 R13
    Date: 2012–06
  12. By: Moeller, Lioudmila; Balmann, Alfons; Kataria, Karin
    Keywords: bioenergy, uncertainty, real options, option to suspend, stochastic simulation, Agricultural Finance, Financial Economics, Risk and Uncertainty, D40, D81, Q41, Q42, Q48,
    Date: 2012
  13. By: Bogale, Ayalneh; Genene, Wubshet
    Abstract: The study seeks to analyze impact of livestock credit and simulate the effect of change in covariates of poverty on households’ consumption expenditure. Data was generated through in person interview of sampled rural households in the Ethiopian Productive Safety Net area. Descriptive statistics, poverty indices, multiple regression, and simulation techniques were applied. The results identified covariates with statistically significant coefficients. The specific contribution in increasing consumption expenditure and reduction in poverty indices as a result of marginal change in covariates was examined. These specific factors need to be considered in designing poverty reduction strategies depending on magnitude of their contribution.
    Keywords: FGT poverty indices, Household Expenditure, Productive Safety Net, Simulation, Agricultural and Food Policy, Consumer/Household Economics, Food Security and Poverty,
    Date: 2012–08–20
  14. By: Jorge A. Chan-Lau
    Abstract: Dynamic provisions could help to enhance the solvency of individual banks and reduce procyclicality. Accomplishing these objectives depends on country-specific features of the banking system, business practices, and the calibration of the dynamic provisions scheme. In the case of Chile, a simulation analysis suggests Spanish dynamic provisions would improve banks' resilience to adverse shocks but would not reduce procyclicality. To address the latter, other countercyclical measures should be considered.
    Keywords: Banks , Business cycles , Capital , Financial risk ,
    Date: 2012–05–14
  15. By: Carson, Richard T; Murray, Jason H.
    Abstract: Fisheries are subject to multiple forms of uncertainty. One of these, parameter uncertainty, has been largely ignored in the fisheries economics literature even though it is known elsewhere (e.g., macroeconomics) to play an important role in models with a similar structure. We model management of a renewable resource with unknown growth parameters and simulate estimation of the key parameters of the growth equation. Even with predictability high by typical standards and the true data generating process serving as the model, management of the fishery is problematic. A simple heuristic alternative making less intensive use of the data performs better.
    Keywords: Economics, Other, Fishery management, simulation, estimation
    Date: 2012–04–01
  16. By: Stefano Benati; Sergio García
    Abstract: This paper introduces an extension of the p-median problem and its application to clustering, in which the distance/dissimilarity function between units is calculated as the distance sum on the q most important variables. These variables are to be chosen from a set of m elements, so a new combinatorial feature has been added to the problem, that we call the p-median model with distance selection. This problem has its origin in cluster analysis, often applied to sociological surveys, where it is common practice for a researcher to select the q statistical variables they predict will be the most important in discriminating the statistical units before applying the clustering algorithm. Here we show how this selection can be formulated as a non-linear mixed integer optimization mode and we show how this model can be linearized in several different ways. These linearizations are compared in a computational study and the results outline that the radius formulation of the p-median is the most efficient model for solving this problem.
    Keywords: p-median problem, Distance selection, Radius formulation
    Date: 2012–06
  17. By: Silvana Stahl (University of Rostock); Stefan Stahl (University of Rostock); Philipp Kasch (University of Rostock)
    Abstract: Riester products recently celebrated their 10th anniversary. Previous studies of their advantages analyzed only partial aspects, focusing either on cost or tax impacts. They yield inconsistent recommendations. The present paper tries to make recommendations based on an equal analysis of cost and tax effects. Our analysis focuses on a decision maker who wants to know if a specific private pension insurance should be bought with or without a Riester subsidy. After a theoretical analysis we carry out a simulation for three types of income. Subsidized Riester contracts seem to be the preferred choice for low income savers or, provided that children are taken into account, for middle income savers. A saver earning a high income is recommended to conclude a non-subsidized retirement contract if he or she has less than three children. The recommendations may be reversed if cost differences between the compared contracts reach a critical level.
    Keywords: Retirement Provisions, Private Pension Insurance, Riester, Taxation, Costs
    JEL: E62 K39
    Date: 2012
  18. By: Cunha, Denis Antonio da; Coelho, Alexandre Braganca; Feres, Jose; Braga, Marcelo Jose
    Abstract: This paper aims to analyze the effects of climate change on Brazilian agriculture considering irrigation adoption as an adaptation strategy. Investigation on how climatic variability influences irrigation adoption was performed as well as whether this adaptation measure actually reduces producers’ vulnerability to climate change. We used matching methods to analyze the choice of irrigation in the first stage and the land values for two types of farmer (irrigators or dryland) in the second stage. Temperature and precipitation projections for the 2010-2099 time period were used, considering different climate scenarios, according the 4th Assessment Report of IPCC (2007). Simulation results showed that irrigation can be a very effective tool to counteract the harmful effects of climate change. Land values for irrigated production are less vulnerable than those of rainfed production. Farmers’ income tends to grow on lands where irrigation techniques are practiced, while on those where agricultural production is exclusively rainfed, losses can sum to approximately 14% in relation to current period. These conclusions confirm the need to invest in adaptation strategies in order to make Brazil ready to cope with the adverse effects of global climate change.
    Keywords: Climate Change, Agriculture, Adaptation, Irrigation, Agribusiness, Agricultural and Food Policy, Environmental Economics and Policy, Farm Management, Land Economics/Use, Research Methods/ Statistical Methods, Q12, Q54,
    Date: 2012
  19. By: Erhan Bayraktar; Mike Ludkovski
    Abstract: We consider a continuous-time model for inventory management with Markov modulated non-stationary demands. We introduce active learning by assuming that the state of the world is unobserved and must be inferred by the manager. We also assume that demands are observed only when they are completely met. We first derive the explicit filtering equations and pass to an equivalent fully observed impulse control problem in terms of the sufficient statistics, the a posteriori probability process and the current inventory level. We then solve this equivalent formulation and directly characterize an optimal inventory policy. We also describe a computational procedure to calculate the value function and the optimal policy and present two numerical illustrations.
    Date: 2012–06
  20. By: Hamano Masashige (University of Luxembourg CREA)
    Abstract: This paper analyzes equity and bond positions in a two-country DSGE model where the number of varieties, i.e. extensive margin is endogenously determined. Households take care about not only the price of goods but also the variety of goods they consume. The welfare-based real exchange rate fluctuations matter in inter- national consumption risk sharing. We investigate analytically and numerically the implication of "variety risk" induced by fluctuations in extensive margins. In nu- merical computation of zero-order steady state portfolios, we employ the Devereux and Sutherland method. We show that, with variety risk, home biased equity posi- tions are further amplified compared to those obtained with the standard model in the literature. The result is shown to be robust with or without firm heterogeneity in marginal costs of production.
    Keywords: real exchange rate, home biased equity puzzle, firm entry, firm heterogeneity
    JEL: F12 F41 F43
    Date: 2012
  21. By: Leif Andersen; Alexander Lipton
    Abstract: Exponential L\'evy processes can be used to model the evolution of various financial variables such as FX rates, stock prices, etc. Considerable efforts have been devoted to pricing derivatives written on underliers governed by such processes, and the corresponding implied volatility surfaces have been analyzed in some detail. In the non-asymptotic regimes, option prices are described by the Lewis-Lipton formula which allows one to represent them as Fourier integrals; the prices can be trivially expressed in terms of their implied volatility. Recently, attempts at calculating the asymptotic limits of the implied volatility have yielded several expressions for the short-time, long-time, and wing asymptotics. In order to study the volatility surface in required detail, in this paper we use the FX conventions and describe the implied volatility as a function of the Black-Scholes delta. Surprisingly, this convention is closely related to the resolution of singularities frequently used in algebraic geometry. In this framework, we survey the literature, reformulate some known facts regarding the asymptotic behavior of the implied volatility, and present several new results. We emphasize the role of fractional differentiation in studying the tempered stable exponential Levy processes and derive novel numerical methods based on judicial finite-difference approximations for fractional derivatives. We also briefly demonstrate how to extend our results in order to study important cases of local and stochastic volatility models, whose close relation to the L\'evy process based models is particularly clear when the Lewis-Lipton formula is used. Our main conclusion is that studying asymptotic properties of the implied volatility, while theoretically exciting, is not always practically useful because the domain of validity of many asymptotic expressions is small.
    Date: 2012–06

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