Three essays on computational methods for policy making

Abstract

Chapters One and Two develop a common-source infection model to explain the formation of households expectations. The model is based on the work presented in "Macroeconomic Expectations of Households and Professional Forecasters" (Carroll, QJE, 2003). The extended framework is applied to study unemployment expectations for a selected group of European countries. Results show that: i) according to econometric analyses and agent-based simulations, the novel framework is supported by survey data; ii) the probability of absorbing new information is (negatively) correlated with the level of uncertainty spread by media and the Internet; iii) households expectations have a non trivial role in determining the output gap. Furthermore, there are economically significant differences in expectations across different demographic groups and these differences may be explained through heterogeneous parameters of the agent-based model. In particular, education seems to be a driver of macroeconomic expectations, with the less educated being less up-to-date. In the third chapter, I present a replication and a robustness analysis of ``Uncertain outcomes and climate change policy'' (R. Pindyck, JEEM, 2012). The paper is concerned with the estimation of the willingness-to-pay of society to avoid climate change. The replication part reproduces the original results in many cases and confirms the quality and interpretation of the work. The robustness analysis, on the one hand, re-estimates the model with more recent data on climate change: the willingness to pay does not vary much with respect to the original paper; on the other hand, changes the functional form producing much bigger and potentially problematic increments of the willingness to pay.