Reinhard Neck

OPTCON: an algorithm for the optimal control of nonlinear stochastic models

In this paper we describe the algorithm OPTCON which has been developed for the optimal control of nonlinear stochastic models. It can be applied to obtain approximate numerical solutions of control problems where the objective function is quadratic and the dynamic system is nonlinear. In addition to the usual additive uncertainty, some or all of the parameters of the model may be stochastic variables. The optimal values of the control variables are computed in an iterative fashion: First, the time-invariant nonlinear system is linearized around a reference path and approximated by a time-varying linear system. Second, this new problem is solved by applying Bellmans principle of optimality. The resulting feedback equations are used to project expected optimal state and control variables. These projections then serve as a new reference path, and the two steps are repeated until convergence is reached. The algorithm has been implemented in the statistical programming system GAUSS. We derive some mathematical results needed for the algorithm and give an overview of the structure of OPTCON. Moreover, we report on some tentative applications of OPTCON to two small macroeconometric models for Austria.

Stochastic control theory and operational research

Abstract The paper gives an overview of stochastic optimal control theory and its applications to operational research. Stochastic control theory deals with the intertemporal optimization of dynamic systems under uncertainty. After a short review of deterministic optimal control theory and the theory of stochastic dynamic systems, a general stochastic optimal control problem is formulated both in discrete and continuous time. Among the method for solving such problems, particularly stochastic dynamic programming and the stochastic maximum principle are introduced. Examples from the areas of finance, advertising, production-inventory models, and information policy illustrate the applicability of stochastic control theory to operational research problems. Moreover, its actual and potential impact on OR is discussed from a methodological point of view.

The Consequences of Progressive Income Taxation for the Shadow Economy: Some Theoretical Considerations

In recent years, both the public debate and the scientific literature have shown increased interest in the phenomenon of the shadow (underground, hidden) economy.1 As a working definition, we may say that the shadow economy consists of those economic activities which contribute to value-added and should be included in GDP or national income according to the conventions of national-income accounting, but are at present not registered by the national measurement agencies. Political concern about the size and the growth of the shadow economy arises for various reasons: apart from the general undesirability of illegal activities, there are also economic problems associated with the underground economy. For example, it may be a result or a cause of allocative and distributive distortions; the effects of stabilization policies may be different when there is a considerable amount of hidden activities; and, in general, spillovers between the shadow and the official economy must not be neglected when policy measures are being planned and implemented. Moreover, if rising tax rates lead to an increase in the extent of the shadow economy, higher tax rates may cause lower instead of higher tax revenues for the government. This possibility of a falling portion of the Laffer curve has to be taken into account when budgetary policies are under consideration.2

Cross-cultural equity evaluations: A questionnaire-experimental approach

Abstract The theoretical background of the empirical investigations to be reported in this paper are positionalist aggregation functions which are numerically representable. The broad Borda rule is proposed as an aggregation mechanism for the case of a complete profile of the so-called individual extended orderings. We modify this rule to reflect considerations of equity. Students from Germany, Israel, the Baltic States, Austria and Slovenia were confronted with questionnaires that describe ‘situations’, most of which reflect different aspects of needs. All situations start from the preference structure which underlies an equity axiom. We are focussing on the following three points: (a) What is the percentage of respondents satisfying the equity axiom? (b) How often do the students revise their initial decision when more and more people join the side of the more advantaged? (c) Are there major differences across countries and cultures?

Politico-Economic Determinants of Public Debt Growth: A Case Study for Austria

Based on a number of economic andparticularly politico-economic arguments,we examine the reasons for the growth ofthe central governments debt in Austriausing time series data for the period 1960 to 1999. Starting with an empiricaltest of Bohns theory of sustainability offiscal policy, which is based on Barrostax-smoothing model, we extend the model toaccount for several politico-economicvariables suggested by public choicetheories. Keynesian stabilization policyobjectives, influences of ideology andpolitical parties, the form of governmentand the political business cycle are testedregarding their ability to explain thegrowth of public debt in Austria. There issome empirical evidence for systematicinfluence of government behavior inaccordance with recent public choicetheories. However, it seems that the mostimportant influence on Austrian fiscalpolicy is the unemployment rate, which has asignificant influence on the decisions madeby policy-makers. Concluding, we brieflydiscuss the implications of these resultsfor the prospects of reducing public debtin Austria in the near future.

The Consequences of a Changing Shadow Economy for the “Official” Economy: Some Empirical Results for Austria

During the last few years, growing concern about the phenomenon of the shadow (or hidden) economy has arisen; as a consequence, the shadow economy has received increasing attention by the public, politicians, and social scientists.1 For industrial countries, there are at least two reasons why politicians have become concerned about the growth and size of the shadow economy: (1) If an increase in the size of the shadow economy is mainly caused by a rising tax burden, any increase in tax rates may lead to a further shift from official to inofficial activities and, hence, to a further decrease in tax revenues. (2) If — due to the existence of the shadow economy — some individuals have a second source of income and spend at least part of this income in the “official” economy, any change in the size of the shadow economy directly affects the development of the official economy.

Global Implications of Monetary and Fiscal Policy Rules in the EMU

In order to analyze successful strategies for economic policy in a global environment both international interdependencies and the strategic behavior of “global players” must be considered. We use a global model of the world economy (the MSG2 Model) to show the effects of dynamic policy optimization in the presence of various supply and demand shocks to different world regions. We show that fixed rules are generally superior for supply shocks, while demand shocks call for more active or discretionary policies.

SLOPOL1: A macroeconomic model for Slovenia

This paper presents the specification and estimation of SLOPOL1 (Slovenian Economic Policy Model, Version 1), a macroeconometric model for Slovenia. Since Slovenia became an independent state in 1991, the available time series are very short and unreliable. In order to increase the degrees of freedom, quarterly data are used. The model contains behavioral equations for factor demand, potential gross domestic product, imports, the wage-price system, private consumption and labor supply of households, money and foreign exchange markets, and the public sector. Due to data constraints, the supply side and household consumption have not been further disaggregated. The capability of the model to reproduce the behavior of the endogenous variables in an ex post simulation can be regarded as satisfactory.

On the Sustainability of Austrian Budgetary Policies

The question whether fiscal policies are sustainable in the long run has received much attention in the international political agenda. In this paper, we investigate whether Austrian fiscal policy has been sustainable during the last four decades. We apply several econometric approaches to test for the sustainability of fiscal policies. The results are ambiguous. For the period of 1960–1974, we find evidence for sustainable fiscal policies. For the period 1975–1999, the results indicate that Austrian fiscal policy was not sustainable in the long run. If Austrian policy-makers do not change their budgetary policy in the future, the long-term budget constraint of the state will be violated.

Control System Approaches for Sustainable Development and Instability Management in the Globalization Age

Abstract Mankind civilization in the globalization age depends heavily on advanced information technologies resulting from automation of control and decision expertise and their respective scientific disciplines. These have a multitude of impacts on development of national economies within the global economy. The broad area of social systems, being essentially human centred systems, is a cross-, inter- and multi-disciplinary challenge to control community. Social systems in modern civilization, currently undergoing globalization, are reviewed from the systems science viewpoint and on the grounds of recent developments in control science and technology. Recent developments put new emphasis on the social responsibility of the control and automation field during the ongoing changes from the cold-war bipolar world to a unipolar one on the way to mankinds multi-polar world of the future. The focus should be on innovative systems approaches, employing new paradigms, to combined knowledge and technology transfer world-wide, that may remedy some of the negative aspects of globalization.