New Economics Papers
on Computational Economics
Issue of 2012‒11‒17
eight papers chosen by

  1. Agent-based models for economic policy design: Two illustrative examples By Westerhoff, Frank; Franke, Reiner
  2. Agent-based models of the labor market By Michael Neugart; Matteo G. Richiardi
  3. Agent-Based Modelling for Financial Markets By Iori, G.; Porter, J.
  4. Citizenship and Power in an Agent-based Model of Tax Compliance with Public Expenditure By Paolo Pellizzari; Dino Rizzi
  5. Imputing Individual Effects in Dynamic Microsimulation Models.An application of the Rank Method. By Ambra Poggi; Matteo G. Richiardi
  6. Multilevel simulation of functionals of Bernoulli random variables with application to basket credit derivatives By Karolina Bujok; Ben Hambly; Christoph Reisinger
  7. Redefinition of the Greek electoral districts through the application of a region-building algorithm By Photis, Yorgos N.
  8. Impact of time illiquidity in a mixed market without full observation By Salvatore Federico; Paul Gassiat; Fausto Gozzi

  1. By: Westerhoff, Frank; Franke, Reiner
    Abstract: With the help of two examples, we illustrate the usefulness of agent-based models as a tool for economic policy design. In our first example, we apply a financial market model in which the order flow of speculators, relying on technical and fundamental analysis, generates intricate price dynamics. In our second example, we apply a Keynesian-type goods market model in which the investment behavior of firms, relying on extrapolative and regressive predictors, generates complex business cycles. We add a central authority to these two setups and explore the impact of simple intervention strategies on the model dynamics. Based on these experiments, we conclude that agent-based models may help us to understand how markets function and to evaluate the effectiveness of various stabilization policies. --
    Keywords: Agent-based models,Economic policy design,Financial markets,Goods markets,Simulation analysis
    JEL: C63 D84 E32 G12
    Date: 2012
  2. By: Michael Neugart; Matteo G. Richiardi
    Abstract: We review the literature on agent-based labor market models by tracing its roots to the microsimulation literature, and surveying a selection of contributions made since the work by Bergmann (1974) and Eliasson (1976). Agent-based models have been applied to explain stylized facts of labor markets as well as for labor market policy evaluations. They also constitute a major part in agent-based macroeconomic models. Besides reviewing the various results achieved, we discuss modeling choices with respect to agents’ behavior and the structure of interaction. Our overall assessment is that agent-based labor market models have given us valuable insights into the functioning of labor markets and the consequences of labor market policies, and that they will increasingly become an essential tool of analysis, in particular when the construction of large macro-models is involved.
    Date: 2012
  3. By: Iori, G.; Porter, J.
    Date: 2012
  4. By: Paolo Pellizzari (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari)
    Abstract: In this paper we present a model of tax compliance with heterogeneous agents who maximize their individual utility based on income and the conjectured level of per capita public expenditure. We formally include psychological drivers in this model. These drivers affect individual behavior, such as risk aversion, together with appreciation of public expenditure, expectations about peers’ compliance and a natural inclination to comply, all of which we summarize in a quality termed “citizenship”. The enforcement system, based on random inspections, is standard and only partially known to agents. The agent-based model is simulated under a variety of settings, representing different “societies”. We use the artificial data produced by the model to estimate the effects of taxpayers’ traits on personal tax behavior and to build a compliance societal slippery slope. At the individual level, we find a positive dependence of compliance on all variables, with the significant exception of the tax rate, which has a negative impact. As far as societies are concerned, we show how aggregate tax compliance depends on composite indices of citizenship and power, and we find that the former is more important than the latter.
    Keywords: Tax evasion, public expenditure, agent-based models
    JEL: H26 H40 C63
    Date: 2012
  5. By: Ambra Poggi; Matteo G. Richiardi
    Abstract: Dynamic microsimulation modeling involves two stages: estimation and forecasting. Unobserved heterogeneity is often considered in estimation, but not in forecasting, beyond trivial cases. Non-trivial cases involve individuals that enter the simulation with a history of previous outcomes. We show that the simple solutions of attributing to these individuals a null effect or a random draw from the estimated unconditional distributions lead to biased forecasts, which are often worse than those obtained neglecting unobserved heterogeneity altogether. We then present a first implementation of the Rank method, a new algorithm for attributing the individual effects to the simulation sample which greatly simplifies those already known in the literature. Out-of-sample validation of our model shows that correctly imputing unobserved heterogeneity significantly improves the quality of the forecasts.
    Keywords: Dynamic microsimulation, Unobserved heterogeneity, Validation, Rank method, Assignment algorithms, Female labor force participation, Italy
    JEL: C53 C18 C23 C25 J11 J12 J21
    Date: 2012
  6. By: Karolina Bujok; Ben Hambly; Christoph Reisinger
    Abstract: We consider $N$ Bernoulli random variables, which are independent conditional on a common random factor determining their probability distribution. We show that certain expected functionals of the proportion $L_N$ of variables in a given state converge at rate 1/N as $N\rightarrow \infty$. Based on these results, we propose a multi-level simulation algorithm using a family of sequences with increasing length, to obtain estimators for these expected functionals with a mean-square error of $\epsilon^2$ and computational complexity of order $\epsilon^{-2}$, independent of $N$. In particular, this optimal complexity order also holds for the infinite-dimensional limit. Numerical examples are presented for tranche spreads of basket credit derivatives.
    Date: 2012–11
  7. By: Photis, Yorgos N.
    Abstract: The main purpose of this paper is the formulation of a methodological approach for the definition of homogenous spatial clusters, taking into account both geographical and descriptive characteristics. The proposed methodology, is substantiated by SPiRAL (SPatial Integration and Redistricting ALgorithm), a constrained-based spatial clustering algorithm, whose successive steps focus on the analysis of the characteristics of the areas being integrated, the designation of the spatial clusters and the validity of a joining criterion. We applied the methodological approach and used SPiRAL to solve a realistic electoral redistricting problem. Namely, the redefinition of the electoral districts of the Prefecture of Lakonia in Greece. The results demonstrate an improved layout of the study area’s electoral map as far as the problem’s criteria and constraints are concerned (adjacency, population and size), justifying in this respect the perspectives and potential of our approach in the analysis and confrontation of similar problems.
    Keywords: Spatial clustering; GIS; constraint-based algorithm; electoral districts; Greece
    JEL: R53 O2 D72
    Date: 2012–10
  8. By: Salvatore Federico; Paul Gassiat; Fausto Gozzi
    Abstract: We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of two possibly correlated assets: one liquid and one illiquid. The liquid asset is observed and can be traded continuously, while the illiquid one can be traded only at discrete random times corresponding to the jumps of a Poisson process with intensity $\lambda$, is observed at the trading dates, and is partially observed between two different trading dates. The problem is a nonstandard mixed discrete/continuous optimal control problem which we face by the dynamic programming approach. When the utility has a general form we prove that the value function is the unique viscosity solution of the HJB equation and, assuming sufficient regularity of the value function, we give a verification theorem that describes the optimal investment strategies for the illiquid asset. In the case of power utility, we prove the regularity of the value function needed to apply the verification theorem, providing the complete theoretical solution of the problem. This allows us to perform numerical simulation, so to analyze the impact of time illiquidity in this mixed market and how this impact is affected by the degree of observation.
    Date: 2012–11

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