Technology adoption with limited foresight and uncertain technological learning

Most previous optimization models on technology adoption assume perfect foresight over the long term. In reality, decision-makers do not have perfect foresight, and the endogenous driving force of technology adoption is uncertain. With a stylized optimization model, this paper explores the adoption of a new technology, its associated cost dynamics, and technological bifurcations with limited foresight and uncertain technological learning. The study shows that when modeling with limited foresight and technological learning, (1) the longer the length of the decision period, the earlier the adoption of a new technology, and the value of a foresight can be amplified with a high learning rate. However, when the decision period is beyond a certain length, further extending its length has little influence on adopting the new technology; (2) with limited foresight, decisions aiming at minimizing the total cost of each decision period will commonly result in a non-optimal solution from the perspective of the entire decision horizon; and (3) the range of technological bifurcation is much larger than that with perfect foresight, but uncertainty in technological learning tends to reduce the range by removing the early adoption paths of a new technology.     

Perfect foresight dynamics in games with linear incentives and time symmetry

This paper investigates absorption and global accessibility under perfect foresight dynamics in games with linear incentives. An action distribution in the society is absorbing if there is no equilibrium path escaping from the distribution, and globally accessible if, from every initial distribution, there exists an equilibrium path which converges to the distribution. Using time symmetry of the dynamics, we show that every absorbing strict Nash equilibrium, if it exists, is globally accessible under zero rate of time preference. With the additional assumption of supermodularity, we prove that there generically exists an absorbing strict Nash equilibrium. Relations with a global game and a reaction-diffusion model also become clear. The definition of absorption used in this paper is slightly different from the original one in Matsui and Matsuyama (1995). This difference is neglected in Sect. 1, and will be discussed in Sect. 2.2.     

Product development resource allocation with foresight

Shortening project duration is critical to product development project success in many industries. As a primary driver of progress and an effective management tool, resource allocation among development activities can strongly influence project duration. Effective allocation is difficult due to the inherent closed loop flow of development work and the dynamic demand patterns of work backlogs. The Resource Allocation Policy Matrix is proposed as a means of describing resource allocation policies in dynamic systems. Simple system dynamics and control theoretic models of resource allocation in a product development context are developed. The control theory model is used to specify a foresighted policy, which is tested with the system dynamics model. The benefits of foresight are found to reduce with increasing complexity. Process concurrence is found to potentially reverse the impact of foresight on project duration. The model structure is used to explain these results and future research topics are discussed.     

Robust responses to climate change via stochastic MARKAL: The case of Québec

Future patterns of climate change and economic growth are critical parameters in long-term energy planning. This paper describes a multi-stage stochastic programming approach to formulate a flexible energy plan. The plan incorporates multiple future scenarios and provides for mid-course corrections depending upon the actual realizations of future uncertainties. Results are derived from the stochastic version of Extended MARKAL (MARKet ALlocation) model for Québec, developed for this purpose. The analysis indicates significant savings of overall system cost in using a hedging strategy over any of the perfect foresight ones. With a 50% probability of implementing stringent carbon mitigation measures after 15 years, the emission trajectory takes the middle path till this uncertainty is resolved. Prior to resolution, electricity supply follows the middle path, natural gas and renewable energy tend to follow the low mitigation trajectory, and oil supply approaches the high mitigation trajectory. A set of specialized hedging technologies has been identified, which emerges more competitive in the hedging strategy than in any of the perfect foresight ones. The paper concludes that such treatment of future uncertainties can give insights that are beyond the scope of an analysis based on deterministic scenarios.     

STABILITY OF THE PRICE REACTION FUNCTION WHEN THE CONSUMERS ANTICIPATE FUTURE PRICES

The hypothesis of the price reaction function-prices change in dependence of capacity utilization-is frequently applied to model OPEC's response to world oil market conditions. These studies assume implicitly myopic consumer behavior, or more bluntly, only the “experts” know this model but not the consumers. This paper extends the analysis to rational expectations (more precisely, perfect foresight due to a deterministic framework) and proves the (saddlepoint) stability of the equilibrium. Numerical examples highlight the differences of the two hypotheses, myopic versus rational consumer expectations. In particular, damped oscillations result for the empirical application (larger and more persistent for myopic consumers), which explains past volatility.     

Productive public expenditures, expectation formations and nonlinear dynamics

In this paper, we investigate the dynamic properties of an overlapping generations’ model with capital accumulation and publicly funded inventions under three different expectations: perfect foresight, myopic expectations and adaptive expectations. We show that considering productive public expenditures in the model will increase the dimension of the dynamical system. To study the dynamic behavior of a high-dimensional dynamical system, we focus on the case when the elasticity of publicly funded invention to output is small and approximate the system by using a one-dimensional dynamical system. This approximation method provides an efficient way to rigorously prove the existence of chaos in high-dimensional dynamical systems. We show that when agents are perfectly foresighted, there exists a unique, nontrivial steady state which is a global attractor. Cycles or even chaos may occur under myopic and adaptive expectations when the inter-temporal elasticity of substitution of consumption is large enough. Furthermore, we find that the impact of fiscal policy is sensible to the expectation formation.     

LONG-RUN EQUILIBRIA IN AN ECONOMY WITH A GREENHOUSE EFFECT

This paper examines perfect foresight inter-generational macroeconomic tradeoffs associated with climate change. Consumption of perfectly competitive agents is associated with exacerbation of the climate change problem. Saving and investment reduce exposure to a negative production externality caused by the greenhouse effect, through a non-probabilistic catastrophic threshold. In this overlapping generations economy, saving and investment provide benefits to future generations that current individuals are unable to capture. Two kinds of equilibria are shown to exist. The gas stock may remain at a constant or declining level so the threshold does not matter in steady-state equilibrium even with population growth, where consumption, investment and production are all constant in per capita terms. When the threshold does matter because the gas stock is growing in steady state, agents flirt with catastrophe, make strategic economic decisions based on what other agents are doing, and optimize by walking a knife-edge of disaster at the threshold. Like the private provision of a public good, price-taking agents internalize the public bad. This is the focal point symmetric Nash equilibrium, but the potential for a coordination failure is also shown to exist where agents with perfect foresight would find it optimal not to end the economy, but are unable to avoid doing so.     

Arbitrage without borrowing or short selling?

We show that a trader, who starts with no initial wealth and is not allowed to borrow money or short sell assets, is theoretically able to attain positive wealth by continuous trading, provided that she has perfect foresight of future asset prices, given by a continuous semimartingale. Such an arbitrage strategy can be constructed as a process of finite variation that satisfies a seemingly innocuous self-financing condition, formulated using a pathwise Riemann–Stieltjes integral. Our result exemplifies the potential intricacies of formulating economically meaningful self-financing conditions in continuous time, when one leaves the conventional arbitrage-free framework.     

Management attitudes,learning and scale in successful diversification: a dynamic and behavioural resource system view

The paper presents a system dynamics model to examine an enduring puzzle of corporate strategy. Why do extensive empirical studies continue to show a weak relationship between diversification and performance, despite persuasive arguments suggesting performance should improve? And why do well-intentioned executives seemingly turn a blind eye to the available empirical and anecdotal evidence that diversification rarely pays-off? Some diversification strategies go seriously wrong. Could it be that researchers and executives are misled by the complexity of dynamic multi-business investment decisions? The model draws on case material describing Goodyear’s move out of its core tyre business into oil and gas in the late 1980s. Two versions of the model compare the fortunes and performance of hypothetical twin firms, FocusCo and DiversiCo, each facing an identical downturn in their traditional core business, and starting with identical levels of strategic resources. FocusCo invests strictly in its core business while DiversiCo has the option to invest in non-core business if managers view the performance of the core to be unsatisfactory. Simulations show how DiversiCo's success (relative to FocusCo) depends both on business fundamentals (real profitability and relative scale of the core and non-core) and behavioural traits of typical corporate investment policy covering target setting, managers' expectations, limited foresight, prior beliefs, optimism, confidence and learning style. There are some surprises such as the very long time delay in recognising clear winners, and counterproductive effects on performance of seemingly positive traits such as optimism and fast learning. The paper ends with comments on the implications of the results for practice and research.     

Bilateral Exchange and Competitive Equilibrium

Motivated by computerized markets, this paper considers direct exchange between matched agents, just two at a time. Each party holds a ”commodity vector,” and each seeks, whenever possible, a better holding. Focus is on feasible, voluntary exchanges, driven only by (projected) differences in generalized gradients. The paper plays down the importance of agents’ competence, experience and foresight. It also reduces the role of optimization, and it allows non-smooth data. Yet it identifies reasonable conditions which suffice for convergence to competitive equilibrium.     

Prisoner's dilemma game on adaptive networks under limited foresight

We study the emergence of cooperation in an environment where players in prisoner's dilemma game (PDG) not only update their strategies but also change their interaction relations. Different from previous studies in which players update their strategies according to the imitation rule, in this article, the strategies are updated with limited foresight. We find that two absorbing states—full cooperation and full defection—can be reached, assuming that players can delete interaction relations unilaterally, but new relations can only be created with the mutual consent of both partners. Simulation experiments show that high levels of cooperation in large populations can be achieved when the temptation to defect in PDG is low. Moreover, we explore the factors which influence the level of cooperation. These results provide new insights into the cooperation in social dilemma and into corresponding control strategies. © 2012Wiley Periodicals, Inc. Complexity, 2012     

AN ANALYSIS OF TRANSITION FROM LIMITED ENTRY TO TRANSFERABLE QUOTA: NON-MARSHALLIAN PRINCIPLES FOR FISHERIES MANAGEMENT

Static analysis shows that individual transferable quotas (ITQs) can dramatically increase economic efficiency comparable to a limited entry (LE) management by releasing excess capital. However, the transition from LE to ITQ management presents further efficiency questions. This paper shows that the rate of retirement of excess capital is determined by the opportunity cost of holding ITQ harvest rights on cost inefficient vessels. While restructuring is immediate with perfect foresight, delayed exit occurs with uncertainty and low opportunity costs of holding ITQ. Nearly cost-efficient fishers anticipate increasing their payoff by waiting for higher ITQ prices, e.g., game theoretic principles rather than static Marshallian principles apply. The results raise policy questions about allocating ITQ to incumbent fishers at no charge. The Mid-Atlantic surf clam and ocean quahog fishery which switched from LE to ITQ management in 1990 is analyzed as a case study. Results show that a large surplus was possible but unattained under LE management but also that adjustment has been slow and costly, consistent with the results of this paper.     

Negotiation-proof Nash equilibrium

This paper defines “negotiation-proof Nash equilibrium', a notion that applies to environments where players can negotiate openly and directly prior to the play of a noncooperative game. It recognizes the possibility that a group of self-interested players may choose, voluntarily and without binding agreement, to coordinate their choice of strategies and make joint objections; moreover, it takes the perfect foresight of rational players fully into account. The merit of the notion of negotiation-proof Nash equilibrium is twofold: (1) It offers a way to rectify the nestedness assumption and myopia embedded in the notion of coalition-proof Nash equilibrium. (2) The negotiation process is formalized by a “graph”, which serves as a natural extension to the approach that models preplay communication by an extensive game. Received: October 1998/Final version: May 2000     

Bias of the structural quasi-score estimator of a measurement error model under misspecification of the regressor distribution

In a structural measurement error model the structural quasi-score (SQS) estimator is based on the distribution of the latent regressor variable. If this distribution is misspecified, the SQS estimator is (asymptotically) biased. Two types of misspecification are considered. Both assume that the statistician erroneously adopts a normal distribution as his model for the regressor distribution. In the first type of misspecification, the true model consists of a mixture of normal distributions which cluster around a single normal distribution, in the second type, the true distribution is a normal distribution admixed with a second normal distribution of low weight. In both cases of misspecification, the bias, of course, tends to zero when the size of misspecification tends to zero. However, in the first case the bias goes to zero in a flat way so that small deviations from the true model lead to a negligible bias, whereas in the second case the bias is noticeable even for small deviations from the true model.     

A Behavioural Approach to Obtaining a Doubly Constrained Trip Distribution Model

An alternative method of producing a doubly constrained trip distribution similar to that of a gravity model is described. This alternative model differs from conventional models in that it has an explicit, though naive, behavioural rationale. It also produces a doubly constrained distribution more rapidly than these conventional models, partly because it involves fewer iterations and partly because each successive iteration involves fewer zones than that preceding it. In the one full-scale test for which data are available, the new model efficiently simulates a survey derived distribution, while tests with hypothetical systems show that it produces a distribution which can be closely identified with that produced by a conventional model.     

上海股票市场收益的随机波浪模型

对金融资产收益分布状况的主要研究方法是先提出分布模型,然后进行实验验证;因缺乏必要的机理分析和研究手段单一,使其理论研究和应用研究都受到一定的制约.为克服这些不足,将金融资产收益联系起来看,根据其涨跌周期性构建出随机波浪模型,并利用模型导出随机波浪波高和周期的分布公式.通过实证分析,证明随机波浪模型具有一定的适用性;所用的时频分析方法以及所得结论有益于对金融资产收益分布状况进行更深入的理论和应用研究,也有益于指导市场参与者进行短期和长期交易.     

Model predictive control,the economy,and the issue of global warming

This study is motivated by the evidence of global warming, which is caused by human activity but affects the efficiency of the economy. We employ the integrated assessment Nordhaus DICE-2007 model (Nordhaus, A question of balance: economic modeling of global warming, Yale University Press, New Haven, 2008). Generally speaking, the framework is that of dynamic optimization of the discounted inter-temporal utility of consumption, taking into account the economic and the environmental dynamics. The main novelty is that several reasonable types of behavior (policy) of the economic agents, which may be non-optimal from the point of view of the global performance but are reasonable form an individual point of view and exist in reality, are strictly defined and analyzed. These include the concepts of “business as usual”, in which an economic agent ignores her impact on the climate change (although adapting to it), and of “free riding with a perfect foresight”, where some economic agents optimize in an adaptive way their individual performance expecting that the others would perform in a collectively optimal way. These policies are defined in a formal and unified way modifying ideas from the so-called “model predictive control”. The introduced concepts are relevant to many other problems of dynamic optimization, especially in the context of resource economics. However, the numerical analysis in this paper is devoted to the evolution of the world economy and the average temperature in the next 150 years, depending on different scenarios for the behavior of the economic agents. In particular, the results show that the “business as usual”, although adaptive to the change of the atmospheric temperature, may lead within 150 years to increase of temperature by 2°C more than the collectively optimal policy.     

Gaussian DCT Coefficient Models

It has been known that the distribution of the discrete cosine transform (DCT) coefficients of most natural images follow a Laplace distribution. However, recent work has shown that the Laplace distribution may not be a good fit for certain type of images and that the Gaussian distribution will be a realistic model in such cases. Assuming this alternative model, we derive a comprehensive collection of formulas for the distribution of the actual DCT coefficient. The corresponding estimation procedures are derived by the method of moments and the method of maximum likelihood. Finally, the superior performance of the derived distributions over the Gaussian model is illustrated. It is expected that this work could serve as a useful reference and lead to improved modeling with respect to image analysis and image coding.     

多维指数分布模型

运用 Marshall-Olkin推导二维指数分布的思路 ,提出七个相互独立冲击源的冲击模型 ,构造了三维指数分布 .鉴于该方法分析过程繁琐 ,难于推广到高维情形 .文中另辟溪径 ,利用作者已建立的多维失效率与分布密度函数间的关系 ,并结合致命冲击的含义 ,得到三维乃至一般的 n维指数分布 .     

分层广义线性模型在准备金评估中的建模研究

考虑到赔付流量三角形数据同一事故年反复观测的纵向特征以及数据结构的层次性,建立了分层广义线性模型.与通常的随机模型相比,分层广义线性模型不但可以选择条件反应变量的分布而且风险参数分布范围也更加广泛.利用h-似然函数估计分层广义线性模型的模型参数,降低了计算量.为使模型具有可比性,评估模型的预测精度,推导了模型预测误差的估计式.为充分利用已知赔付信息,将赔付额和赔付次数两种赔付信息纳入未决赔款准备金评估模型,建立了两阶段分层广义线性模型.在线性预测量中考虑了各种固定效应和随机效应以及模型结构的散布参数,改进了线性预估量结构.研究表明:分层广义线性模型对于数据的各种分布及形式都具有很好的适应性,更加符合保险实务现实的赔付规律.