Table of Contents
Table of Contents
List of Tables
List of Figures
List of Code Fragments
1 How to Use This Book
Organization of the Book
Intended Audience
Prerequisite Knowledge
Suggested Reading Plans
Typographic Conventions
Changing Software Commands
MATLAB Programming and Code
Main Purpose of Code
Version Notes
Accessing Files and Online Resources
Accessing the Economics Toolbox
Disclaimers and Limitations
Contacting the Author and Publisher
Contacting the Author
Contacting the Publisher
Contacting The MathWorks
References on MATLAB and Applied Economics
Suggested Resources for MATLAB Users in Business,
Economics, and Finance
General Books on Using MATLAB
MATLAB Explanations in This Book
Books on Applying MATLAB for Business, Economics, and
Related Fields
Fundamental and Historical References
Books for Other Fields
Maxims of Business Economics
Conclusion
2 Mathematical and Simulation Models in Business Economics
Business Economics vs. Academic Economics
Why Practice Business Economics?
Why Study Academic Economics?
Copyright © 2005 Chapman & Hall/CRC Press LLC
Why Use Mathematical and Simulation Software?
Software Environments
Simulation Models vs. Spreadsheets
Why Use MATLAB and Simulink?
Using MATLAB
Using Simulink
Drawbacks of MATLAB and Simulink
When To Use Mathematical or Simulation Models
When To Use GIS and Database Software
An Admonition
3 MATLAB and Simulink Design Guidelines
The Importance of Good Design
What is Design?
Why Use Good Design?
Setting Up the MATLAB Workspace
Organizing MATLAB Models
MATLAB Scripts and Functions
Callbacks
Design Guidelines for m-files
Initializing a Model
Initializing a MATLAB Model
Initializing a Simulink Model
Introduction to Simulink Models
The Simulink Model Schematic
Time and States in a Simulink Model
Example Simulink Models
Example Economics Model
House Net Benefits Model
Top View
Costs and Rental Value Subsystem
Other Costs Subsystems
Output Blocks
Simulink Model Design Considerations
Style Guidelines for Models
Organizing Simulink Models
The Art of Model Organization
Style Guidelines for Specific Blocks
Initializing a Model
Simulation Parameters and the SIM command
Time and Solver Parameters in Simulink
Setting Parameters through a Menu
The SIM Command
A Master Simulation Callback
Using the Master Simulation Callback
Copyright © 2005 Chapman & Hall/CRC Press LLC
Documenting Your Models
Masked Message Boxes
Trigger Boxes
Callback Messages
Complex String Arrays
String Commands
A Custom Business Economics Simulink Library
To Set Up a Library
To Put Blocks in the Library
To Make the Library Appear in the Simulink Browser
Troubleshooting
Appendix: Master Simulation Callback
4 Importing and Reporting Your Data
The Importance of Data
Know Your Data
The Critical Need
Getting Data into a Model
Getting Data from the Internet
Getting Data From HTML Pages
Direct Internet Data Acquisition
Using Excel Link
Importing Your Data: A General Strategy
Reporting Your Data
Debugging Excel Link
Reporting Your Results
The Diary Command
MATLAB Report Engine
Careful Programming
Recommended Practices
Using Structures to Organize Data
Data Arrays and Data Structures
Uses and Limitations of Arrays
Data Organizing Tools
Discussion: Spreadsheets and Databases
A Note on GIS Databases
Creating Custom Structures
Additional Methods
Command History, Diary, and Notebook
Custom Interfaces
MATLAB Web Server
Appendix I: XML and Structured Data
Limitations of HTML
History of HTML, Other Formats, and XML
Use of XML Today: Its Use in MATLAB
Copyright © 2005 Chapman & Hall/CRC Press LLC
XML and the Document Object Model
Recommendation: Plan for Future Data Exchange
Appendix II: Custom Data Structure Creation
Variables in This Custom Structure
Appendix III: File Importing with MATLAB
Delimited Files
Web-Based Data: HTML
Web-Based Data: XML
Compressed Files
Formatted Files
Databases and Data Feeds
Excel Link
5 Library Functions for Business Economics
Common Analytical Tools in Economics
Library of Tools in MATLAB and Simulink
Microeconomic Theory and Practical Applications
Comparative Statics
Supply Function
Desirable Qualities of the Supply Function
Elasticity of Supply
Putting It Together
Graphics Techniques
Libraries in Simulink
Set Up a Library
To Put Blocks in the Library
Making the Library Appear in the Simulink Browser
Troubleshooting Libraries
Modifying an Existing Library
Special Library Blocks
Growth Models
Custom Business Economics Blocks
Compound Growth
Varying Growth
Elasticity
Example Simulink Model
Purpose of the Model
Top-Level View of Model
Running the Example Model
Master Simulation Callback
6 Economic Impact Models
Economic and Fiscal Impact Models
Ethics in Economic Impact
Sports Exaggerations
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A Syndrome: The Missing Report
A Sports Example: The Super Bowl
Non-Sports Exaggerations
Economic Impact of Y2K
Economic Impact of Broadband
An Example: The Fantasy Game
Sum of Benefits from the Fantasy Game
A Plea for Ethics in Impact Analysis
The Economics of Impact Models
History and Current Usage
Widespread Lack of Knowledge
Input–Output Equations
The Technology Matrix
The Fundamental Equation
A Robinson Crusoe Example
Restrictive Assumptions
Mathematics of Multiplier Analysis
Total Output Multipliers
Uses of Input—Output Analysis
Rules for the Proper Use of Multipliers
Conclusion: Rules for the Use of Multipliers
Economic Impact Simulation Models
Economic and Fiscal Impacts: City of
Detroit Model
Implementing the Model
Schematics of the Simulink Model
Modeling Dynamic Behavior: Adjustment
Option I: Borrow Depreciation Algorithms
Option II: Specify Partial Adjustment Model
7 Fiscal Impact Models
Fiscal Impact Methodology
Definition of Fiscal Impact
Relationship between Economic and Fiscal Impacts
On the Political Economy of Taxes
Fiscal Impact of Industrial Development
Methodology Summary
Description of Each Part of the Model
Overview: Fiscal Impact Model
Notes on Model Structure
Source Data
Recapitulation of Exhibits
Additional Technical Notes
Copyright © 2005 Chapman & Hall/CRC Press LLC
8 Tax Revenue and Tax Policy
Introduction
Advantages of Simulation Models
Sections in This Chapter
Income and Payroll Taxes
Federal Income Taxes
State and Local Income Taxes
OASDI (Social Security and Medicare) Taxes
FUTA (Federal Unemployment Tax Act)
Unemployment Insurance
Who Pays Payroll Taxes?
Modeling Income and Payroll Taxes
Earned Income Tax Credit
Introduction
Tax Policy Analysis Methodology
Payroll Taxes As a Share of Taxes on Wages
Results of Tax Incidence Analysis
Fiscal Analysis
Fiscal Impact of Tax Policy Change
9 Regional Economics
The Primacy of Regional and Local Economies
Diversification and Recession Risk
Traditional Measures of Diversification
Recession-Severity Measure of Diversification
Portfolio Theory Analysis
Methodology
Example Analysis of Cass Country, MI
Urban Sprawl
Defining Sprawl
Calculating Sprawl
Rural Sprawl
Limitations of the Sprawl Index
Preliminary Findings
Conclusions
Appendix I: The Sprawl Index in Mathematical Terms
Example Calculations
Appendix II: Risk and Return Measures for
Diversification Risk and Return
Standard Diversification Measures
Recession-Severity Risk Statistic
10 Applications for Business
Introduction
Contents of this Chapter
Copyright © 2005 Chapman & Hall/CRC Press LLC
Projecting Trend Growth: Simple Uncertainty
Simple Uncertainty: Baseline, High, and Low Scenarios
A Trend Projection Function
Uses for this Function
Trend Projection Code, Graphics, and Output
Function Details
Other Methods for Compound Growth Projections
Projection: Complex Uncertainty
Markov Processes, States, and Uncertainty
Simple Uncertainty: Deviation Around a Trend
Problems with Simple Uncertainty
Another Simple Uncertainty: Random Walk
Complex Uncertainty: Geometric Brownian Motion
Complex Uncertainty: Jump Processes
The Value of a Financial Asset
Earnings or Discount Rate?
Deriving the Present Value of a Financial Asset
Importance of Income Growth vs. Discount Rate
Present Value of a Future Stream With Poisson Risk
Income Under Uncertainty
A Recommended Approach
A Business Income Model
Earnings Drive a Firm
A Business Income Simulation Model
Running the Business Income Model
Application: Real Estate
Iterative Market Value and Tax Model
Simplifying Assumptions Allowing an Iterative Method
An Iterative Model to Estimate Market Value
and Taxation
Appendix: Computer Code for Selected Utility Programs
11 Business Valuation and Damages Estimation
Economics, Finance, and Valuation
Use of This Chapter by Readers of Different Backgrounds
What Is To Be Valued?
Difference between Market Value and
Accounting Concepts
Book Value and Market Value
The Role of Economist and Accountant in Business Valuation
Concepts of Value
Fair Market Value
Valuation Methods
Approaches to Valuation
Copyright © 2005 Chapman & Hall/CRC Press LLC
Fundamental Equivalence of Methods
New Approaches to Valuation
Recommended Order of Methods
Best Evidence: Market Price
Second Best Method: Income Method
Third Best Method: Asset-Based Methods
Dynamic Programming and Real Options Methods
The Real Options Approach
Dynamic Programming Methods
Conclusion: Real Options and Dynamic
Programming Methods
Information Necessary To Value a Firm
Accounting Information
Economic Assumptions
Management Policies
Example Business Valuations
Steps To Value a Business or Estimate Damages
Example: Beverage Distributors
Creating the Structure
Estimating Business Values
Valuation Estimates by Multiple Methods
Graphical Output from Valuation Calculations
Summary of Valuation Session
Importance of Judgment
Rational Damages
Economic Structure of Corporate Law
Economics of Sanctions
The Discount Rate
General Principle: Match Rate with Purpose,
Duration, and Risk
12 Applications for Finance
Finance and Economics
Consumer Lending
Mortgage Analysis
Depreciation
Auto Depreciation
Investment Portfolio Analysis
Mean-Variance Analysis
Portfolio Analysis in MATLAB
The GetStocks Function
Other Topics in Finance
Portfolio Theory and Economic Diversification
Growth Models and Simulink
Credit Risk
Copyright © 2005 Chapman & Hall/CRC Press LLC
13 Modeling Location and Retail Sales
Introduction: The Spatial Dimension in Economics
The Location Poverty of Modern Economics
Location and the Birth of Economics
Business Economics and Location
What is “Retail”?
A Note on GIS
Applying Economic Theory to Sales Location
The Economics of Time
Increased Distance Means Increased Costs
Newton’s Law of Gravity
The Social Gravity Model
The Quadratic Human?
The Social Gravity Model: Application
Retail Sales Adaptation of the Gravity Model
Uses for Distance–Sales Analysis
Customer Location Data
What Is Location?
Sources of Customer Location Data
Initial Analysis of Regional Sales Data
Geographic Analysis of Sales
Equal-Distance Rings
Sales Patterns by Area
Finding Distances
Applying a Gravity Model to the Distance–Sales
Analysis
Data Collection and Formatting
Specifying and Estimating a Sales–Distance Model
Nonlinear Optimization and Gravity Model Estimation
Alternative Specification: Best-Fit Polynomials
Comparison: Gravity and Polynomial Models
Weaknesses of Polynomial Equations
Conclusion: Gravity Models vs. Polynomials
Complex Models with Additional Variables
Determining Sales and Market Areas
Projecting Total Sales
Defining Market Areas
Estimating Sales Shifts and Cannibalization
Cannibalization in Retail Franchises
Required Data
Changes in Total Product Sales
Measuring Changes in Sales by Retailer
Measuring Changes to Sales
14 Applications for Manufacturing
Copyright © 2005 Chapman & Hall/CRC Press LLC
Statistical Quality Control
Statistics and Statistical Process Control
Purposes, Innovations, and Limitations of this Chapter
History and Uses of SPC
Principles of SPC
The Classic Shewhart Charts
A Simple SPC Program
A “Thin-Client” Approach
SPC Using MATLAB Web Server
Customizing the Application
Extending Beyond SPC: Taguchi Methods
15 Fuzzy Logic Business Applications
Human Logic and Fuzzy Thinking
An Extension of Boolean Logic
Probability Statements
Example: Selection of Investments
Equivalence of Boolean and Fuzzy Logic
History of Fuzzy Logic
Current Uses and Names of Fuzzy Logic
References on Fuzzy Logic
An Income Tax Audit Predictor
Example: Income Tax Audit Predictor
Purpose of the Predictor
History and Structure of the Predictor
The Rules of the Audit Predictor
Graphical Illustration
Running a Fuzzy Logic System
Variation: Simulation Models
A Credit Risk Fuzzy Logic Simulation Model
Using a Simple Credit Risk FIS
Structure of the Credit Risk Model
Extensions of This Model
Conclusion: Credit Risk Simulation Model
Implementation Issues and Troubleshooting Tips
Fuzzy Logic Models in MATLAB
Fuzzy Logic Models in Simulink
16 Bringing Analytic Power to the Internet
Static and Dynamic Data on the Web
The Third Wave: Complex Analysis
Example 1: Financial Industry
Example 2: Automotive Retail
Key Advances
Information in This Chapter
Copyright © 2005 Chapman & Hall/CRC Press LLC
The Network as Platform
Choosing the Platform: Windows vs. the Web
Controlling the Desktop
Calculations, Databases, and Dynamic Pages
MATLAB on the Web
Design Considerations for Web Server Applications
A Difference in Windows
Other Differences
Setting Up the Web Server Model
Planning for the Future
Text and Data Formats on the Web
Graphics Formats
Publishing Your Results on the Internet or an Intranet
Limitations of HTML
The Coming XML Standard
Structured Data and the Document Object Model
MATLAB and XML
Example 1: Generating Help Files
Example 2: Creating Custom Information Files
Other XML Tools Available
Conclusion: Using XML in MATLAB
Scalable Vector Graphics
SVG and Traditional Graphics
Extending beyond Static Display
Business Applications for SVG Images
17 Graphics and Other Topics
Purpose
Tufte Principles
Graphical Excellence
Rules for Effective Graphics
Methods of Specific Plots
Handle Graphics in MATLAB
References on Graphics in MATLAB
The Testplot Function
Line Graphs
Pie Charts
Bar Charts
Subplots
Adjusting Axes
Generating Test Graphics
Appendix A: Troubleshooting
Introduction to Troubleshooting
Troubleshooting MATLAB
Copyright © 2005 Chapman & Hall/CRC Press LLC
Path Command
Data Type Mismatches
Checking MATLAB Paths and References (Windows)
A Note on Operating Systems
Troubleshooting Simulink Models
Data Problems in Simulink Models
Calculation Problems
Model Structure Problems
Appendix B: Excel Link Debugging
Excel Link Debugging
Common Excel Link Problems
Other Recommendations
Copyright © 2005 Chapman & Hall/CRC Press LLC