nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒08‒07
fifteen papers chosen by
Stan Miles
Thompson Rivers University

  1. CGE-Based Methods to Measure the Impact of Trade Liberalization on Poverty By Isabel Teichmann
  2. Dynamic Principal-Agent Models By Philipp Renner; Karl Schmedders
  3. Computation of solutions to dynamic models with occasionally binding constraints By Holden, Tom D.
  4. A Long-Term Evaluation of Recent Hungarian Pension Reforms By Christoph Freudenberg; Tamás Berki; Ádám Reiff
  5. Ist eine Glättung des Mittelstandsbauchs finanzierbar? Eine Mikrosimulationsstudie By Pestel, Nico; Schnabel, Reinhold; Siegloch, Sebastian; Sommer, Eric; Spermann, Alexander
  6. Modelling the impacts of trade on employment and development: A structuralist CGE-model for the analysis of TTIP and other trade agreements By Raza, Werner; Taylor, Lance; Tröster, Bernhard; von Arnim, Rudi
  7. Household Debt and Macrodynamics - How do Income Distribution and Insolvency Regulations interact? By Nadja König
  8. Feature Selection with the R Package MXM: Discovering Statistically-Equivalent Feature Subsets By Lagani, Vincenzo; Athineou, Giorgos; Farcomeni, Alessio; Tsagris, Michail; Tsamardinos, Ioannis
  9. Energy saving potential of natural ventilation in China: The impact of ambient air pollution By Zheming Tong; Yujiao Chen; Malkawi, Ali; Zhu Liu; Richard B. Freeman
  10. Credit Risk and Collateral Demand in a Retail Payment System By Héctor Pérez Saiz; Gabriel Xerri
  11. Where is the future of China’s biogas? Review, forecast, and policy implications By Lei Gu; Yi-Xin Zhang; Jian-Zhou Wang; Gina Chen; Hugh Battye
  12. On the Use of Computer Programs as Money By Ross D. King
  13. Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfers By Ali Enami; Nora Lustig; Alireza Taqdiri
  14. Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform By Vasilev, Aleksandar
  15. Cultural Transmission and Socialization Spillovers in Education By Del Bello, Carlo; Panebianco, Fabrizio; Verdier, Thierry; Zenou, Yves

  1. By: Isabel Teichmann
    Abstract: It is heavily discussed whether trade liberalization is good or bad for the poor in a given (developing) country. The answer depends on a wide variety of factors, such as the type of trade barrier removed, the economic and institutional environment in the country, and the characteristics of the poor in that country (Winters 2002; Winters et al. 2004). In addition, the results can also be driven by the specific method used to measure the impact of the trade-policy reform on poverty. For an informed discussion, it is, therefore, important to understand the corresponding empirical methods at hand.Most generally, empirical studies on trade impacts can be divided into ex-post and ex-ante analyses. Whereas ex-post studies focus on the effects of trade policies that have already been implemented, ex-ante analyses simulate the effects of potential future (and actual) trade policies (Piermartini and Teh 2005). In other words, ex-post studies have both pre- and post-reform data at their disposal, while ex-ante studies rely exclusively on pre-liberalization data. Ex-post analyses have the advantage of being grounded on real-world observations; however, their difficulty lies in applying appropriate statistical methods to separate the impact of a given trade-policy reform from any other shock affecting the economy in the observation period (Hertel and Reimer 2005; Piermartini and Teh 2005). This identification problem is absent in ex-ante studies, conducting counterfactual analyses, as they allow to explicitly and exclusively simulate the trade-policy shock (Hertel and Reimer 2005). However, simulation studies encounter yet other challenges, namely to verify the assumptions concerning the model specification (e.g., parameters and functional forms) and, thus, to ensure the quality of the results (Piermartini and Teh 2005; Winters et al. 2004). Their strength, in turn, is to reveal possible orders of magnitude of a policy impact, to identify relative winners and losers, and to give insights into the quantitative importance of the mechanisms behind the effects of a given trade-policy reform on poverty (Winters 2003; Winters et al. 2004; Bourguignon et al. 1991).While examples of ex-post methods to analyze the effects of trade liberalization on poverty can be found in Winters et al. (2004), this Roundup gives an overview of some basic ex-ante methods available to quantify and evaluate the impact of a trade-policy reform – or, more generally, a macro-economic shock – on the distribution of household income for poverty (and inequality) analysis, i.e. on the micro-economic level. The methods considered here center all around so-called computable general equilibrium (CGE) models. On the one hand, they include the standard CGE approach with (one or) several representative households; on the other hand, they cover macro-micro simulations, subdivided into the top-down approach, the top-down/bottom-up approach, and the integrated approach. For each method, the Roundup provides a brief description, some applications, and a critical assessment.
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:diw:diwrup:100en&r=cmp
  2. By: Philipp Renner (Stanford University - The Hoover Institution on War, Revolution and Peace); Karl Schmedders (University of Zurich)
    Abstract: This paper contributes to the theoretical and numerical analysis of discrete time dynamic principal-agent problems with continuous choice sets. We first provide a new and simplified proof for the recursive reformulation of the sequential dynamic principal-agent relationship. Next we prove the existence of a unique solution for the principal's value function, which solves the dynamic programming problem in the recursive formulation, by showing that the Bellman operator is a contraction mapping. Therefore, the theorem also provides a convergence result for the value function iteration. To compute a solution for the problem we have to solve a collection of static principal-agent problems at each iteration. Under the assumption that the agent's expected utility is a rational function of his action, we can transform the bi-level optimization problem into a standard nonlinear program (NLP). We can then solve these nonlinear problems with a standard NLP solver. The final results of our solution method are numerical approximations of the policy and value functions for the dynamic principal-agent model. We illustrate our solution method by solving variations of two prominent social planning models from the economics literature.
    Keywords: Optimal unemployment tax, principal-agent model, repeated moral hazard
    JEL: C63 D80 D82
    URL: http://d.repec.org/n?u=RePEc:chf:rpseri:rp1626&r=cmp
  3. By: Holden, Tom D.
    Abstract: We construct the first algorithm for the perfect foresight solution of otherwise linear models with occasionally binding constraints, with fixed terminal conditions, that is guaranteed to return a solution in finite time, if one exists. We also provide a proof of the inescapability of the “curse of dimensionality” for this problem when nothing is known a priori about the model. We go on to extend our algorithm to deal with stochastic simulation, other non-linearities, and future uncertainty. We show that the resulting algorithm produces fast and accurate simulations of a range of models with occasionally binding constraints.
    Keywords: occasionally binding constraints,zero lower bound,computation,DSGE,linear complementarity problem
    JEL: C61 C63 E3 E4 E5
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:zbw:esprep:144569&r=cmp
  4. By: Christoph Freudenberg (Institute of Public Finance Freiburg University); Tamás Berki (Magyar Nemzeti Bank, Central Bank of Hungary); Ádám Reiff (Magyar Nemzeti Bank, Central Bank of Hungary)
    Abstract: This paper studies the effect of Hungarian pension reforms between 2009-2012 on the adequacy and long-term fiscal stability of the Hungarian public pension system. For the adequacy analysis, we use a micro simulation model to project future initial pension levels relative to future gross wages. For the analysis of fiscal stability, we use a generational accounting-based macro model to forecast future yearly cash balances and calculate implicit pension liability (IPL) indicators. We find that major recent reforms have stabilized the public pension system until around 2035, but after this, mainly due to unfavorable demographic developments, we project increasing deficits that reach about 4% of GDP by 2060.
    Keywords: Pension reforms, Sustainability of pension systems, Micro simulation
    JEL: H55
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:mnb:wpaper:2016/2&r=cmp
  5. By: Pestel, Nico (IZA); Schnabel, Reinhold (University of Duisburg-Essen); Siegloch, Sebastian (University of Mannheim); Sommer, Eric (IZA); Spermann, Alexander (University of Freiburg)
    Abstract: Eine steuerliche Entlastung der Mittelschicht durch eine Abflachung des Einkommensteuer-tarifs wird immer wieder von der Politik gefordert. Wir führen eine Mikrosimulation einer solchen Reform durch und analysieren die Effekte auf Fiskus, Beschäftigung und Ungleich-heit. Die zu erwartenden massiven Steuerausfälle machen flankierende Maßnahmen erforderlich. Unsere Ergebnisse legen nahe, dass es kaum politisch und rechtlich umsetz¬bare Reformen gibt, die den Aufkommensverlust wettmachen könnten und gleichzeitig die ursprüngliche Zielsetzung der Reform nicht gefährden würden.
    Keywords: Steuerreform, Einkommensteuertarif, Beschäftigungseffekte, Spitzensteuersatz, Mikrosimulation
    JEL: H24 C63
    Date: 2016–07
    URL: http://d.repec.org/n?u=RePEc:iza:izasps:sp86&r=cmp
  6. By: Raza, Werner; Taylor, Lance; Tröster, Bernhard; von Arnim, Rudi
    Abstract: In recent years, a number of studies have been put forth to assess the potential economic effects of the EU-US trade agreement - the Transatlantic Trade and Investment Partnership (TTIP). Most studies report gains for the TTIP-member states. However, the commonly applied CGE models contain questionable assumptions such as full employment. In this report, we present a structuralist CGE-model for the assessment of TTIP with fundamentally different key assumptions with regard to the determination of output, income and employment. These distinct closures are applied within the standard trade liberalization setting including the reduction of tariffs and non-tariff barriers. Importantly, the model delivers results with regard to (i) macroeconomic effects including employment and wages, (ii) sectoral (20 Sectors) and (iii) regional (11 countries/regions) effects. Even though small but positive income effects are reported, the diverging results among TTIP-members, negative effects for real wages for low skill labor and the rest of the world, in particular developing countries, should be highlighted. An extensive sensitivity analysis confirms potential risks associated with TTIP.
    Abstract: Seit März 2013 verhandeln EU und USA das Transatlantische Handels- & Investitionspartnerschaftsabkommen (TTIP). Aufgrund ihrer wirtschaftlichen Bedeutung und der weitreichenden Verhandlungsagenda stellt dies die bedeutendste handelspolitische Initiative seit dem Start der WTO Doha Runde im November 2001 dar. Die entscheidende Frage für politische Entscheidungsträger lautet dabei: Cui bono? Genauer: Was sind die zu erwartenden Auswirkungen des Abkommens auf Wirtschaftswachstum, Beschäftigung und Einkommensverteilung? In den letzten Jahrzehnten sind sog. CGE Modelle zum Standardinstrument geworden, um die Effekte der Handelsliberalisierung abzuschätzen. Diese Modelle wurden dafür kritisiert, dass sie erstens meist eine konstante Beschäftigung, ein konstantes Defizit der öffentlichen Haushalte und der Leistungsbilanz annehmen, und dass sie zweitens wichtige strukturelle Eigenheiten von Ländern nicht berücksichtigen. Damit bleiben zentrale Fragen außerhalb des analytischen Blicks. Das gegenständliche Papier präsentiert ein strukturalistisches CGE Modell, das (a) die Auswirkungen von Handelsliberalisierung auf die Beschäftigung, die Faktoreinkommen, die öffentlichen Haushalte und die Leistungsbilanz untersucht, (b) die strukturellen Eigenheiten von Volkswirtschaften berücksichtigt, und (c) flexibel auf verschiedene Szenarien und Handelsabkommen angewendet werden kann. Das Modell wird sodann für die Abschätzung der makroökonomischen Auswirkungen der laufenden EU-USA Verhandlungen (TTIP) verwendet. Damit soll ein Beitrag zur wissenschaftlichen und wirtschaftspolitischen Diskussion zu den Auswirkungen von Handelsliberalisierung auf Wachstum und Verteilung geleistet werden. Das hier vorgestellte Modell ist ein Multi-Sektor, Multi-Regionen Modell mit 20 Wirtschaftssektoren und 11 Regionen bzw. Ländern, und zwei Typen von Arbeitskräften (hochqualifiziert/ niedrig-qualifiziert). Die empirische Datengrundlage wird durch eine Social Accounting Matrix (SAM) auf Basis von Daten des Global Trade Analysis Projekts (GTAP) bereitgestellt. Mit dem Modell können die Auswirkungen von Veränderungen tarifärer wie nicht-tarifärer Handelshemmnisse (NTB) auf die abgebildeten Volkswirtschaften untersucht werden. Einschränkend muss darauf hingewiesen werden, dass die Effekte der Veränderung von NTB nur unvollständig dargestellt werden können. Insbesondere ist eine Bewertung des sozialen Nutzens bzw. der sozialen Kosten von NTB wie z.B. Gesundheitsoder Verbraucherschutzbestimmungen nicht möglich. Stattdessen werden nur die Kostenersparnisse aus dem Wegfall bzw. der Angleichung von NTM für die Privatwirtschaft berücksichtigt. Ebenso wenig können wie bei den meisten anderen Studien die Effekte vieler anderer Elemente der neuen Generation von Freihandelsabkommen abgebildet werden. Dazu gehören unter anderem die Effekte von Investitionsliberalisierung, den Schutz geistiger Eigentumsrechte, oder andere Effekte, wie zum Beispiel Umwelteffekte oder Auswirkungen auf die Menschenrechte. Daher berücksichtigt unser Modell nur einen Teil der Effekte von Handelsabkommen und enthält eine Tendenz zur Überschätzung der positiven wirtschaftlichen Effekte von Handelsliberalisierung. [...]
    Keywords: trade impact assessment,non-tariff measures,trade policy
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:zbw:oefsew:57&r=cmp
  7. By: Nadja König (Universität Hamburg (University of Hamburg))
    Abstract: Using agent-based simulation methods we explore the interplay between income distribution, personal insolvency regulations and household borrowing focusing on the effects on macroeconomic dynamics. In order to capture the empirically observed distribution of income and wealth, we model them by means of a Generalised Pareto Distribution. In the presence of social comparison effects, the insolvency regime decides on lower income households' incentives to expose themselves to possibly unsustainable levels of debt. Our main findings can be summarised as follows: for both, creditor friendly and debtor friendly regimes, higher skewness in the distribution of income and wealth leads to an increase in the number of defaults and to lower levels of GDP. Comparing the two regimes, we observe a higher number of defaults and higher aggregate debt under pro-debtor laws given the same starting values for the distribution of income. While debt-financed consumption leads to higher levels of GDP under pro-debtor policies, over-borrowing low-income households put a downward pressure on economic growth. The opposite is true for pro-creditor policies, where we observe positive GDP growth rates, as they prevent households from taking up unsustainable levels of debt ex ante.
    Keywords: Optimal Insolvency Regulation, Income and Wealth distribution, Agent-based Model, Computational Simulation
    JEL: D10 D31 E02 E21
    Date: 2016–06
    URL: http://d.repec.org/n?u=RePEc:hep:macppr:201603&r=cmp
  8. By: Lagani, Vincenzo; Athineou, Giorgos; Farcomeni, Alessio; Tsagris, Michail; Tsamardinos, Ioannis
    Abstract: The statistically equivalent signature (SES) algorithm is a method for feature selection inspired by the principles of constrained-based learning of Bayesian Networks. Most of the currently available feature-selection methods return only a single subset of features, supposedly the one with the highest predictive power. We argue that in several domains multiple subsets can achieve close to maximal predictive accuracy, and that arbitrarily providing only one has several drawbacks. The SES method attempts to identify multiple, predictive feature subsets whose performances are statistically equivalent. Under that respect SES subsumes and extends previous feature selection algorithms, like the maxmin parent children algorithm. SES is implemented in an homonym function included in the R package MXM, standing for mens ex machina, meaning 'mind from the machine' in Latin. The MXM implementation of SES handles several data-analysis tasks, namely classi�cation, regression and survival analysis. In this paper we present the SES algorithm, its implementation, and provide examples of use of the SES function in R. Furthermore, we analyze three publicly available data sets to illustrate the equivalence of the signatures retrieved by SES and to contrast SES against the state-of-the-art feature selection method LASSO. Our results provide initial evidence that the two methods perform comparably well in terms of predictive accuracy and that multiple, equally predictive signatures are actually present in real world data.
    Keywords: feature selection, constraint-based algorithms, multiple predictive signatures
    JEL: C88
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:72772&r=cmp
  9. By: Zheming Tong; Yujiao Chen; Malkawi, Ali; Zhu Liu; Richard B. Freeman
    Abstract: Natural ventilation (NV) is a key sustainable solution for reducing the energy use in buildings, improving thermal comfort, and maintaining a healthy indoor environment. However, the energy savings and environmental benefits are affected greatly by ambient air pollution in China. Here we estimate the NV potential of all major Chinese cities based on weather, ambient air quality, building configuration, and newly constructed square footage of office buildings in the year of 2015. In general, little NV potential is observed in northern China during the winter and southern China during the summer. Kunming located in the Southwest China is the most weather-favorable city for natural ventilation, and reveals almost no loss due to air pollution. Building Energy Simulation (BES) is conducted to estimate the energy savings of natural ventilation in which ambient air pollution and total square footage at each city must be taken into account. Beijing, the capital city, displays limited per-square-meter saving potential due to the unfavorable weather and air quality for natural ventilation, but its largest total square footage of office buildings makes it become the city with the greatest energy saving opportunity in China. Our analysis shows that the aggregated energy savings potential of office buildings at 35 major Chinese cities is 112 GWh in 2015, even after allowing for a 43 GWh loss due to China?s serious air pollution issue especially in North China. 8?78% of the cooling energy consumption can be potentially reduced by natural ventilation depending on local weather and air quality. The findings here provide guidelines for improving current energy and environmental policies in China, and a direction for reforming building codes.
    URL: http://d.repec.org/n?u=RePEc:qsh:wpaper:428396&r=cmp
  10. By: Héctor Pérez Saiz; Gabriel Xerri
    Abstract: The recent financial crisis has led to the development of new regulations to control risk in designated payment systems, and the implementation of new credit risk management standards is one of the key issues. In this paper, we study various credit risk management schemes for the Canadian retail payment system (ACSS) that are designed to cover the exposure of a defaulting member. We consider schemes that use a collateral pool calculated using a rolling time window. Our simulations show that the size of the window has a very significant effect on the average level of collateral and its variability day to day, creating an interesting trade-off. Collateral levels and variability may be important for ACSS participants because they could affect the opportunity costs of pledging collateral, and also the costs of managing it over time. Our results contribute to understanding the practical implementation of risk management schemes in the current and future generations of payment systems in Canada.
    Keywords: Econometric and statistical methods, Financial stability, Payment clearing and settlement systems
    JEL: G21 G23 C58
    Date: 2016
    URL: http://d.repec.org/n?u=RePEc:bca:bocadp:16-16&r=cmp
  11. By: Lei Gu; Yi-Xin Zhang; Jian-Zhou Wang; Gina Chen; Hugh Battye
    Abstract: This paper discusses the history and present status of different categories of biogas production in China, most of which are classified into rural household production, agriculture-based engineering production, and industry-based engineering production. To evaluate the future biogas production of China, five models including the Hubbert model, the Weibull model, the generalized Weng model, the H–C–Z model, and the Grey model are applied to analyze and forecast the biogas production of each province and the entire country. It is proved that those models which originated from oil research can also be applied to other energy sources. The simulation results reveal that China’s total biogas production is unlikely to keep on a fast-growing trend in the next few years, mainly due to a recent decrease in rural household production, and this greatly differs from the previous goal set by the official department. In addition, China’s biogas production will present a more uneven pattern among regions in the future. This paper will give preliminary explanation for the regional difference of the three biogas sectors and propose some recommendations for instituting corresponding policies and strategies to promote the development of the biogas industry in China.
    Keywords: biogas production; China; temporal-spatial-forecast; policy
    JEL: N0 J50
    Date: 2016–07–05
    URL: http://d.repec.org/n?u=RePEc:ehl:lserod:67274&r=cmp
  12. By: Ross D. King
    Abstract: Money is a technology for promoting economic prosperity. Over history money has become increasingly abstract, it used to be hardware, gold coins and the like, now it is mostly software, data structures located in banks. Here I propose the logical conclusion of the abstraction of money: to use as money the most general form of information - computer programs. The key advantage that using programs for money (program-money) adds to the technology of money is agency. Program-money is active and thereby can fully participate in economics as economic agents. I describe the three basic technologies required to implement program-money: computational languages/logics to unambiguously describe the actions and interactions of program-money; computational cryptography to ensure that only the correct actions and interactions are performed; and a distributed computational environment in which the money can execute. I demonstrate that most of the technology for program-money has already been developed. The adoption of program-money transfers responsibility from human economic agents to money itself and has great potential economic advantages over the current passive form of money. For example in microeconomics, adding agency to money will simplify the exchange of ownership, ensure money is only used legally, automate the negotiation and forming of contracts, etc. Similar advantages occur in macroeconomics, where for example the control of the money supply could be transferred from central banks to money. It is also possible to envisage money that is not owned by any external human agent or corporation. One motivation for this is to force economic systems to behave more rationally and/or more like a specific economic theory, thereby increasing the success of economic forecasting.
    Date: 2016–08
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1608.00878&r=cmp
  13. By: Ali Enami (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University); Alireza Taqdiri (Department of Economics, University of Akron)
    Abstract: Using the Iranian Household Expenditure and Income Survey (HEIS) for 2011/12, we apply the marginal contribution approach to determine the impact and effectiveness of each fiscal intervention, and the fiscal system as a whole, on inequality and poverty. Net direct and indirect taxes combined reduce the Gini coefficient by 0.0644 points and the headcount ratio by 61 percent. When the monetized value of in-kind benefits in education and health are included, the reduction in inequality is 0.0919 Gini points. Based on the magnitudes of the marginal contributions, we find that the main driver of these reductions is the Targeted Subsidy Program, a universal cash transfer program implemented in 2010 to compensate individuals for the elimination of energy subsidies. The main reduction in poverty occurs in rural areas, where the headcount ratio declines from 44 to 23 percent. In urban areas, fiscally-induced poverty reduction is more modest: the headcount ratio declines from 13 to 5 percent. Taxes and transfers are similar in their effectiveness in achieving their inequality-reducing potential. By achieving 40 percent of its inequality-reducing potential, the income tax is the most effective intervention on the revenue side. On the spending side, Social Assistance transfers are the most effective and they achieve 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from being taxed. In contrast, since the bulk of transfers are not targeted to the poor, they are not very effective: the most effective ones achieve 20 percent of their poverty reduction potential. The effectiveness of the Targeted Subsidy Program could be improved by eliminating the transfer to top deciles and re-allocating the freed funds to the poor.
    Keywords: Inequality, poverty, marginal contribution, CEQ framework, policy simulation.
    JEL: D31 H22 I38
    Date: 2016–07
    URL: http://d.repec.org/n?u=RePEc:tul:wpaper:1605&r=cmp
  14. By: Vasilev, Aleksandar
    Abstract: This paper provides a quantitative evaluation of the welfare effect of the introduction of proportional taxation in Bulgaria in 2008, an effect that operates through the grey economy channel. Using a general-equilibrium model, augmented with informal sector, a computational experiment is performed to evaluate the welfare gain from the adoption of proportional taxation. The lower effective tax burden in the new tax regime produces a relocation of people into the official sector, stimulates investment, and increases output and consumption. Finally, under the flat tax regime, the size of the informal sector is smaller, and quantitatively consistent with OECD (2009) and European Commission (2012) figures.
    Keywords: taxation,informal sector
    JEL: D91 J46
    Date: 2015
    URL: http://d.repec.org/n?u=RePEc:zbw:esprep:144528&r=cmp
  15. By: Del Bello, Carlo; Panebianco, Fabrizio; Verdier, Thierry; Zenou, Yves
    Abstract: We propose a model of the intergenerational transmission of education where children belong to either high-educated or low-educated families. Children choose the intensity of their social activities while parents decide how much educational effort to exert. We characterize the equilibrium and show under which condition cultural substitution or complementarity emerges. There is cultural substitution (complementarity) if parents decrease (increase) their education effort when their child socializes more with other children of the same type. By structurally estimating our model to the AddHealth data in the United States, we find that there is cultural complementarity for high-educated parents and cultural substitution for low-educated parents. This means that, for both parents, the more their children interact with kids from high-educated families, the more parents exert educational effort. We also perform some policy simulations. We find that policies aiming at mixing high and low educated children perform well in terms of average educational outcomes. We also show that a policy that gives vouchers to children from high-educated families have a positive and significant impact on the educational outcomes of all children while a policy that gives vouchers to children from low-educated families has a negative effect on the outcomes of both groups.
    Keywords: cultural transmission.; education; homophily; Social Networks
    JEL: D85 I21
    Date: 2016–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:11419&r=cmp

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