Optimization Models in a Transition Economy PDF
Preview Optimization Models in a Transition Economy
Springer Optimization and Its Applications 101 Ivan V. Sergienko Mikhail Mikhalevich Ludmilla Koshlai Optimization Models in a Transition Economy Springer Optimization and Its Applications VOLUME101 ManagingEditor PanosM.Pardalos(UniversityofFlorida) Editor–CombinatorialOptimization Ding-ZhuDu(UniversityofTexasatDallas) AdvisoryBoard J.Birge(UniversityofChicago) C.A.Floudas(PrincetonUniversity) F.Giannessi(UniversityofPisa) H.D.Sherali(VirginiaPolytechnicandStateUniversity) T.Terlaky(McMasterUniversity) Y.Ye(StanfordUniversity) AimsandScope Optimization has been expanding in all directions at an astonishing rate during the last few decades. New algorithmic and theoretical techniques havebeendeveloped,thediffusionintootherdisciplineshasproceededata rapidpace,andourknowledgeofallaspectsofthefieldhasgrownevenmore profound.Atthesametime,oneofthemoststrikingtrendsinoptimization is the constantly increasing emphasis on the interdisciplinary nature of the field.Optimizationhasbeenabasictoolinallareasofappliedmathematics, engineering,medicine,economics,andothersciences. The series Springer Optimization and Its Applications publishes under- graduate and graduate textbooks, monographs and state-of-the-art exposi- tory work that focus on algorithms for solving optimization problems and alsostudyapplicationsinvolvingsuchproblems.Someofthetopicscovered include nonlinear optimization (convex and nonconvex), network flow problems, stochastic optimization, optimal control, discrete optimization, multi-objectiveprogramming,descriptionofsoftwarepackages,approxima- tiontechniquesandheuristicapproaches. Moreinformationaboutthisseriesathttp://www.springer.com/series/7393 Ivan V. Sergienko • Mikhail Mikhalevich Ludmilla Koshlai Optimization Models in a Transition Economy 123 IvanV.Sergienko MikhailMikhalevich LudmillaKoshlai V.M.GlushkovInstitute ofCybernetics NationalAcademyof SciencesofUkraine Kiev,Ukraine ISSN1931-6828 ISSN1931-6836(electronic) ISBN978-1-4899-7543-0 ISBN978-1-4899-7544-7(eBook) DOI10.1007/978-1-4899-7544-7 SpringerNewYorkHeidelbergDordrechtLondon LibraryofCongressControlNumber:2014953314 ©SpringerScience+BusinessMediaNewYork2014 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped.Exemptedfromthislegalreservationarebriefexcerptsinconnection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’slocation,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer. PermissionsforusemaybeobtainedthroughRightsLinkattheCopyrightClearanceCenter.Violations areliabletoprosecutionundertherespectiveCopyrightLaw. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. While the advice and information in this book are believed to be true and accurate at the date of publication,neithertheauthorsnortheeditorsnorthepublishercanacceptanylegalresponsibilityfor anyerrorsoromissionsthatmaybemade.Thepublishermakesnowarranty,expressorimplied,with respecttothematerialcontainedherein. Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Preface Every day before leaving the comfort of our home we wonder what the weather is like. The weather forecast helps people feel more comfortable and prepared when heading outside. Numerous media sources report a wide range of weather characteristics such as precipitation, wind strength, direction, speed, temperature, humidity,atmosphericpressure,cloudiness,visibility,atmosphericphenomenathat includefog,blizzards,storms,andothermeteorologicaloccurrences. Theweatherundergoescontinuouschangesthatcanbeverynoticeablefromone daytothenextandsometimesevenfromoneminutetothenext.Dependingonthe forecastapersonchoosesprotectiveclothinganditemssuchasraincoats,umbrellas, andglasses. For transportation on land, water, and in the air meteorological factors such as precipitation,ice,windstrength,anddirectionarecrucial.Inaviationforinstance, itwouldbeimportanttonoteasharpincreaseinwindandturbulence. The weather has always existed, and modern man still has almost no control over the weather. Unlike the weather, economy was created by man. The word “economy” itself was introduced by a great scholar of ancient times, Aristotle. It was formed by combining two words: “oikos”—“household” and “nomos,” from “nemein”—“management.” Modern scholars have given the following interpreta- tion of this concept: the economy is a life support system that is consciously built andutilizedbypeopleinallspheresofhumanactivities. Many people take part in daily economic activities, live in a shared economic environmentandsometimesuseeconomictermssuchas“money,”“prices,”“infla- tion,” “wages,” “taxes,” “income,” “costs,” “volumes of production,” “exchange rate,”“unemployment,”or“themarket.” Economic informationreveals theprosandconsofdifferenteconomic systems and public choice options, the difficult choice between equality and efficiency, electoralprocess,activitiesoffirmsandindustrialorganization,marketingandman- agement, labor market, capital and money markets, family economics, consumer behavior,andnationalandglobaleconomy. v vi Preface The fall of the Berlin Wall, the collapse of the communist empire in Eastern Europeintheearly1990sledtosignificantchangesintheeconomiesofthenewly formedcountries.Italsocreatednewinteractionsandgreaterinfluencebetweenthe “openmarket”andthe“transition”economies. This book is written on the basis of the experience of the authors and their colleaguesinmathematicalmodelingofmanytransitioneconomies’characteristics. Themainconclusionreachedbythisbook’sauthorsisthattheconceptofatransition economy opened many avenues for further studies of both open and transition economies. Mathematical modeling of weather phenomena merely allows us to forecast certain essential weather parameters without any possibility of changing them.Incontrast,modelingoftransitioneconomiesgivesusthefreedomtonotonly predictchangesinimportantindexesofalleconomytypesbutalsoinfluencethem moreeffectivelyinthedesireddirection.Inotherwords,anyeconomyincludinga transitionalonecanbecontrolledbyhumans. Thisbookisusefultoanyonewhowantstoincreaseprofitswithintheirbusiness and improve the quality of their family life and the economic area they live in. Professional economists will greatly benefit from new interdependencies between the well-known micro- and macroeconomic parameter behaviors. Moreover, they willappreciatethenewpossibilitiesinsteeringandchangingbothtransitionaland open market economies. Mathematicians will be introduced to new mathematical models as well as efficient methods of finding either feasible or optimal solutions forthosemodels.Employeesofstateplanningandstatisticalorganizationswillbe able to use the proposed models and solutions for improving existing information technologies and operational abilities of their departments. This book is also beneficial for undergraduate and graduate students specializing in the fields of Economic Informatics, Economic Cybernetics, Applied Mathematics, and Large InformationSystems. Therootsofthisbookarosefrompioneeringpublications,manyorganizational efforts,andthecriticalviewofourcolleagueandformerdirectorofGlushkovInsti- tute of Cybernetics, Vladimir S. Mikhalevich. Many of our colleagues worldwide have read, discussed, and commented on some of the book’s ideas as well as the bookinitsentirety.WeexpressourdeepestgratitudetoYu.M.Ermol’evandN.Z. Shorforlayingthefoundationthatallowedthefinalversionofthisbooktobefully realized. The financial support from the Glushkov Institute of Cybernetics, National AcademyofSciencesofUkraineisgreatlyappreciated. Kiev,Ukraine IvanSergienko May2014 Contents 1 FinancialStabilizationModels ............................................. 1 1.1 FinancialStabilization:ThePrimeGoalofMarketReforms......... 1 1.2 TwoMacromodelsUnderInflationConditions........................ 6 1.3 ModelingofCostsInflation ............................................ 20 1.4 ModelingofInflationaryExpectations................................. 45 References..................................................................... 68 2 ModelingofStructural,InstitutionalandTechnologicalChanges ..... 71 2.1 MainDirectionsoftheStructuralReformsinEconomics ............ 71 2.2 ModelingofAntimonopolyMeasures ................................. 74 2.3 ModelsforFiscalSystemOptimization ............................... 89 2.4 OptimizationModelofStructuralandTechnologicalChanges....... 108 2.5 Models and Information Technologies for Decision SupportDuringStructuralandTechnologicalChanges............... 121 2.5.1 Optimization Model of Planning Structural andTechnologicalChanges .................................... 123 2.5.2 Alternative Approach to Developing aComputationalAlgorithm .................................... 130 2.5.3 SoftwareDevelopment ......................................... 135 2.5.4 Modified Intersectoral Models of Structural andTechnologicalChanges .................................... 138 2.5.5 ConclusionsandFieldsofFurtherStudies .................... 146 2.6 ExpertAssessmentsProcessingbyOrdinalRegressionMethods .... 147 2.7 ExampleofOrdinalRegressionMethodsApplication forDefiningtheLimitsandStatusoftheSuburbanArea............. 150 References..................................................................... 157 vii viii Contents 3 ModelingofImperfectCompetitionontheLaborMarket.............. 161 3.1 Imperfect Competition on the Labor Market inaTransitionEconomy................................................ 161 3.2 Modeling of Employment and Growth Processes UnderConstantPrices .................................................. 166 3.3 Modeling of Employment and Growth Processes UnderVariablePrices................................................... 175 3.4 ModelofInterbranchCompetitionontheLaborMarket ............. 194 3.5 Models of Bilateral Monopolistic Competition ontheLaborMarket .................................................... 206 3.5.1 DefiningoftheBranchandRegionalCriteria DuringtheNewJobCreation .................................. 225 3.6 Labor Market Modeling Using a Labor Supply FunctionofTwo-Arguments............................................ 241 3.6.1 Microeconomic Substantiation of the Two-ArgumentFunctionofLaborSupply .................... 243 3.6.2 Analysis of the Relation Between Labor RemunerationandUnemployment............................. 245 3.6.3 LaborMarketAnalysis......................................... 247 3.6.4 Analysis of Consequences of Administrative RegulationofLaborRemunerationandEmployment ........ 254 3.6.5 Conclusions..................................................... 257 References..................................................................... 257 4 ModelingofForeignEconomicActivityinaTransition Economy ...................................................................... 261 4.1 ImpactofExternalitiesontheProcessofEconomicReforms........ 261 4.2 AccountofForeignAspectsinProductionandFinancialModels.... 265 4.3 ExportandImportStructureOptimization............................. 283 4.4 StochasticInvestor’sBehaviorModels ................................ 294 4.5 ModelsofShallowRemakingGoodsExport.......................... 306 4.6 FormalizationofNontransitivePreferencesinProblems ofAnalysisofForeignEconomicActivity............................. 316 4.7 ModelsandDecisionSupportToolsforTransboundary WaterSupplyProblems................................................. 324 References..................................................................... 332 Chapter 1 Financial Stabilization Models 1.1 FinancialStabilization:The PrimeGoal ofMarketReforms Financial crisis in the form of malfunction in money turnover had become one of the first serious problems faced by the post-communist countries in their transition from centralized planned economy to an open-market economy. The most dangerous and destructive forms of this malfunction at that time were the inflation and non-payment crisis. The banking sector had been getting huge rents frominflation,mainlybecauseofthenegativerealinterestratespaidtodepositors. The financial sector, for example in Russia, received about 8% of the Gross Domestic Product (GDP) in 1992 through arbitrage exploiting the negative real interestratespaidtodepositors.Moreover,withtheso-calledstabilizationpolicies provided to banks there exist other forms of profit opportunities via the GKO- OFZs(inRussian:GosudarstvennoyeKratkosrochnoyeObyazatyelstvo-Obligatsyi Federal’novo Zaima), i.e., Government Short-Term Commitments-Federal Loan Obligations,whicharegovernmentbondsissuedbythestateofRussia.Takinginto accountthataccesstoauctionswasrestrictedtopreselecteddealerspreventingform participationtheforeigninvestorsandordinaryRussians,theGKO-OFZsmadeup for the loss of rents from reduced inflation and gave the banks a stake in fighting inflationtokeeptheGKO-OFZreturnshigh(seeRonald[30]). Inearly1990softhetwentiethcenturytheinflationwaspresentedbyasignificant raiseofpricesandaccompaniedbythedecreaseofmoneypurchasingpowerwhich hasbeentypicalalmostforallstatesofCentralandEasternEuropeunderreforms according to the “big bang” approach. However, would be incorrect to consider that this inflation was provoked just by implementation of the “shock therapy.” Intensive inflation was experienced also by several countries in Asia treated by meansofthegradualapproachtoreforms,forinstance,inVietnam(seeDangThi Hieu Li [8]). Several periods of price instability (although not so intense as in the ©SpringerScience+BusinessMediaNewYork2014 1 I.V.Sergienkoetal.,OptimizationModelsinaTransitionEconomy, SpringerOptimizationandItsApplications101,DOI10.1007/978-1-4899-7544-7__1
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