On the local stability of the solution to optimal control problems

New conditions for the local stability of optimal control problems are presented. The conditions are an extension of the results of a previous study focusing on the solution to problems solvable using calculus of variations. A comparison is made between the conditions introduced here and those presented in the literature. It is shown that our condition is roughly as powerful as the one presented by Sorger (J. Math. Anal. Appl. 148 (1990) 191) but it is easier to check.     

Interest risk and default risk: A conditional volatility study

The aim of this work is to measure the risk-price sensitivity to interest rate changes in the Spanish market and to see if sensitivity is lower with public debt. To contrast this hypothesis, this study presents a model that analyzes the sensitivity of the risky prices before variations in interest rates through duration and convexity, with the purpose of explaining the price of risky bonds. The main advantages of the analysis are the possibility to determine the sensibility of the risky prices before variations of risk-free interest rates in the Spanish market and the construction of a conditional volatility model that overcomes the linearity models of constant variance.     

The valuation of GMWB variable annuities under alternative fund distributions and policyholder behaviours

In this paper, we present a dynamic programming algorithm for pricing variable annuities with Guaranteed Minimum Withdrawal Benefits (GMWB) under a general Lévy processes framework. The GMWB gives the policyholder the right to make periodical withdrawals from her policy account even when the value of this account is exhausted. Typically, the total amount guaranteed for withdrawals coincides with her initial investment, providing then a protection against downside market risk. At each withdrawal date, the policyholder has to decide whether, and how much, to withdraw, or to surrender the contract. We show how different policyholder’s withdrawal behaviours can be modelled. We perform a sensitivity analysis comparing the numerical results obtained for different contractual and market parameters, policyholder behaviours and different types of Lévy processes.     

Assessing inflation targeting through intervention analysis

The aim of this paper is to deal with the empirical aspectsof the ‘new’ monetary policy framework, known asInflation Targeting. Applying Intervention Analysis to multivariateStructural Time Series models, which avoids certain biases encounteredin the use of conventional regression estimators, new empiricalevidence is produced in the case of a number of OECD countries.These results demonstrate that although Inflation Targetinghas gone hand-in-hand with low inflation, the strategy was introducedwell after inflation had begun its downward trend. But, then,Inflation Targeting ‘locks in’ low inflation rates.The evidence produced in this paper suggests that non-InflationTargeting central banks have also been successful on this score.     

Modeling different penetration rates of eco-driving in urban areas: Impacts on traffic flow and emissions

Climate change and air quality are two main environmental challenges in metropolitan areas. As road transportation is one of the main contributors, public administrations are facing these problems with a number of complementary policy measures: shift to cleaner modes, new fuels and vehicle technologies, demand management, and the use of information and communication technologies (ICT) applied to transportation. Eco-driving is one of the measures that present large fuel savings at individual level. Although these savings are well documented in the literature, few studies focus on how eco-drivers driving patterns affect the surrounding vehicles and the traffic in general, and more particularly what would be the impact when the number of eco-drivers grows. Using a traffic microsimulation tool, four models in urban context have been built, corresponding to the different types of urban roads. Both the base-case and the parameters setting to simulate eco-driving have been calibrated with real data collected through floating vehicles performing the trips with normal and eco behaviors. In total, 72 scenarios were simulated, varying the type of road, traffic demand, and the percentage of eco-drivers. Then, the CO₂ and NO_x emissions have been estimated through a microscopic emission model. The results show that in scenarios with low or medium demand levels and increasing number of eco-drivers, the effects are positive in terms of emissions. On the other side, with high percentage of eco-drivers and high traffic demand, the emissions rise. Higher headways and smooth acceleration and decelerations increase congestion, producing higher emissions globally.     

Tolerance of tax evasion

We present a formal model in which individuals want the government to tolerate tax evasion because, in a context of limited state capacity, evasion provides insurance. Also, preferred tolerance of tax evasion increases with income, because government programs are redistributive, and decreases with perceived state capacity, because taxation is less distortionary in more capable states. We test the model using a question in the World Values Survey (WVS) about how justifiable cheating on taxes is. We find that tax evasion justifiability views present an inverted-U shape in perceived risk and increase with individuals’ income.

     

Water scarcity and the impact of improved irrigation management: a computable general equilibrium analysis

Increasing water scarcity combined with an increasing demand for food and water for irrigation call for a careful revision of water use in agriculture. Currently, less than 60% of all the water used for irrigation is effectively used by crops. Based on the new version of the GTAP‐W model we analyze the effect of potential water savings and the welfare implications of improvements in irrigation efficiency worldwide. The results show that a water policy directed to improve irrigation efficiency led to global and regional water savings, but it is not beneficial for all regions. The final effect on regional welfare will depend on the interaction of several different causes. For instance, higher irrigation efficiency changes opportunity costs and reverses comparative advantages, modifying regional trade patterns and welfare. For water‐stressed regions the effects on welfare are mostly positive. For nonwater scarce regions the results are more mixed and mostly negative. The results show that exports of virtual water are not exclusive of water abundant regions.     

To formalize or not to formalize: Entrepreneurship and pro-market institutions

In this paper, we examine the effects of pro-market institutions on both formal and informal entrepreneurship. While formal entrepreneurship has long been studied in economic literature, informal entrepreneurship has been less frequently discussed. The purpose of this paper, therefore, is not only to examine the impact of pro-market institutions, but also to foster a better understanding of, and introduce a method to measure, informal entrepreneurship. For the purpose of this paper, pro-market institutions are broken into their two main components: economic liberalization and governance levels. The arguments posit that economic liberalization positively impacts both formal and informal entrepreneurship while governance levels have a positive impact on formal entrepreneurship but a negative effect on informal entrepreneurship. Furthermore, governance levels reduce informal entrepreneurship to a greater extent than they increase formal entrepreneurship, resulting in a net reduction in entrepreneurial activity. The analyses of a panel covering 51 countries from 2002–2009 provide robust support for these arguments.