Evaluation of dynamic stochastic general equilibrium models based on distributional comparison of simulated and historical data

We take as a starting point the existence of a joint distribution implied by different dynamic stochastic general equilibrium (DSGE) models, all of which are potentially misspecified. Our objective is to compare “true” joint distributions with ones generated by given DSGEs. This is accomplished via comparison of the empirical joint distributions (or confidence intervals) of historical and simulated time series. The tool draws on recent advances in the theory of the bootstrap, Kolmogorov type testing, and other work on the evaluation of DSGEs, aimed at comparing the second order properties of historical and simulated time series. We begin by fixing a given model as the “benchmark” model, against which all “alternative” models are to be compared. We then test whether at least one of the alternative models provides a more “accurate” approximation to the true cumulative distribution than does the benchmark model, where accuracy is measured in terms of distributional square error. Bootstrap critical values are discussed, and an illustrative example is given, in which it is shown that alternative versions of a standard DSGE model in which calibrated parameters are allowed to vary slightly perform equally well. On the other hand, there are stark differences between models when the shocks driving the models are assigned non-plausible variances and/or distributional assumptions.     

The Theory of Socially Embedded Games: Applications and Extensions to Open and Closed Games

An earlier article, drawing on the mathematical theory of rules and rule complexes, extends and generalizes game theory (GGT). The theory has been used to conceptualize and analyze diverse social relationships, roles, and games as particular types of rule complexes.For instance, a social role, as a major basis of a parent's action in a game, consists of at least four key components – which are mathematical objects – in the determination of action: value complex, model of reality (including beliefs and knowledge bases), a repertoire of acts, routines, programs, and strategies, and modality, a role-specific algorithm for determining or generating action in game settings. This article applies and extends GGT in analyses of a market bargaining game (a type of open game) and of the classical game of prisoners' dilemma (a type of closed game). The applications show the concrete effects of social embeddedness on game structuring, game interaction patterns and outcomes, and social equilibria.     

When haste makes sense: Cracking down on street markets for illicit drugs

This paper presents an analytical approach to the tactical question: ‘What level of enforcement over time allows one to eliminate a street market for illicit drugs while expanding the least possible total effort?’ The analysis is done in the context of Caulkins' model [6] which predicts the rate of change of dealers as a function of enforcement level and several market parameters. Our analysis suggests that the simple strategy of using the maximum available enforcement intensity until the market has been eliminated minimizes the total enforcement effort required.     

Productive Efficiency of the Swine Industry in Hawaii: Stochastic Frontier vs. Data Envelopment Analysis

Improving productive efficiency is an increasingly important determinant of the future of the swine industry in Hawaii. This paper examines the productive efficiency of a sample of swine producers in Hawaii by estimating a stochastic frontier production function and the constant returns to scale (CRS) and variable returns to scale (VRS) output-oriented DEA models. The technical efficiency estimates obtained from the two frontier techniques are compared. The scale properties are also examined under the two approaches. The industry's potential for increasing production through improved efficiency is also discussed.     

An Average Derivative Estimation of Stochastic Frontiers

This paper utilizes the average derivative estimation of Stoker (1986) and the pesudo-likelihood estimation of Fan, Li, and Weersink (1996) to estimate a semiparametric stochastic frontier regression, y = g(x) + , where the function g(.)is unknown and is a composite error in a standard setting. The proposed semiparametric method of estimation is applied to data on farmers' credit unions in Taiwan. Empirical results show that the banking services of the farmers' credit unions is subject to economies of scale, but high degree of cost inefficiency in operation.     

Hölder continuity of the policy function approximation in the value function approximation

We show that given a value function approximation V of a strongly concave stochastic dynamic programming problem (SDDP), the associated policy function approximation is Hölder continuous in V.     

Flexibility at different stages in the life cycle of projects: An empirical illustration of the “freedom to maneuver”

Many textbooks on project management present illustrations concerning the relative size of project attributes during different project phases. The derived models all have attributes in common, such as uncertainty, significance of decisions, and degree of freedom to maneuver, that are typically high in the beginning of the project and low in the end. At the same time, variables such as the accumulated cost and available information begin at low levels and end up at a high level at the end of the project. Based on empirical data from projects, this paper illustrates and quantifies one of these attributes, the freedom to maneuver, in different project phases.     

The topography of metropolitan employment: Identifying centers of employment in a polycentric urban area

While it is well recognized that US metropolitan areas are polycentric, there is little consensus as to the appropriate method for identifying concentrations of employment within them. Existing methods suffer from strong assumptions about parametric form, misspecification, or reliance on local knowledge to calibrate model parameters. This paper introduces a new nonparametric method for identifying subcenters. Results indicate that this, more flexible, nonparametric approach yields greater accuracy with regard to both urban and suburban centers compared with other approaches. This approach should provide better data for the numerous topics that depend on the spatial accounting of employment within metropolitan areas.     

Drug testing and the law

This article examines judicial and administrative rulings and legislation involving or related to the issue of drug testing in the workplace. It discusses the rights of employees in the public and private sector: constitutional rights; federal, state, and local statutory rights; rights of unionized employees; and common law rights. It analyzes both the current state of the law and future directions the law may take, as courts and administrative agencies decide more cases and governmental bodies continue to pass drug testing legislation.