Uniqueness of general economic equilibrium

For a well-known economic model involving n commodities that are offered for sale, it is proved that there is at most one normalized equilibrium if the values of a certain matrix-valued function of order (n - 1) are Hicksian (i.e., have positive principal minors) throughout its domain of definition. The condition has a nice interpretation, and the result differs from an earlier (and very differently proved) uniqueness result of Arrow and Hahn primarily in that the class of excess-demand functions considered here is considerably less restricted in an important sense.     

Public firms' merger,employment, and welfare in developing countries: A general equilibrium analysis

This paper examines the effect of a merger of state‐owned firms on wage gap, employment, and social welfare in a general equilibrium setting. For a developing economy with state‐owned firms in the urban sector, a merger via a reduction in the number of the urban state‐owned firms can reduce the cost of capital. It then lowers the skilled wage rate through the factor‐substitution effect, while it raises the unskilled wage by the inflow of capital to the rural sector and hence lowers urban unemployment. In addition, the reduction in the number of the urban state‐owned firms can yield a scale effect to the firms. The beneficial effects on higher urban output and less urban unemployment can improve social welfare of the developing economy.     

Climate change and economic growth: An intertemporal general equilibrium analysis for Egypt

This study advances the state of the art in country-level computable general equilibrium analysis for climate change impact and adaptation analysis by incorporating forward-looking expectations. The analytic framework is used to explore the long-run growth prospects for Egypt in a changing climate. Based on a review of existing estimates of climate change impacts on agricultural productivity, labour productivity and the potential losses due to sea-level rise for the country, the model is used to simulate the effects of climate change on aggregate consumption, investment and income up to 2050. Available cost estimates for adaptation investments are employed to explore adaptation strategies.The simulation analysis suggests that in the absence of policy-led adaptation investments, real GDP towards the middle of the century will be 6.5% lower than in a hypothetical baseline without climate change. A combination of adaptation measures, that include coastal protection investments for vulnerable sections along the low-lying Nile delta, support for changes in crop management practices and investments to raise irrigation efficiency, could reduce the GDP loss in 2050 to around 2.6%.Further work along these lines for developing countries in climate change hotspot regions deserves a high priority on the research agenda in economic modelling.     

Potential economic reforms in North Korea: a dynamic general equilibrium model

We use a dynamic general equilibrium model to examine hypothetical market reforms in North Korea. We model partial reform, in which producers choose capital allocations across sectors, with the government still fixing total capital. We also consider two full market reform scenarios. In one, public infrastructure investment remains unchanged, while, in the other, it increases substantially. In all scenarios, we assume a closed economy and a constant military size. Our simulations show little hope for the North Korean economy without boosting infrastructure. Although all of the reforms raise consumption, only significant increases in infrastructure investment bring positive economic growth.     

Linking dynamic economic and ecological general equilibrium models

Although ecosystems provide myriad services to economies, only one service is considered in most renewable-resource models. The general equilibrium bioeconomic model introduced here admits a second service, and more importantly it accounts for how the two services are impacted by interactions within an eight-species ecosystem and interactions within a regional economy. Endangered Steller sea lion recovery measures via alternative pollock quotas change all ecosystem populations and all economic variables. While non-use values associated with the ecosystem (e.g., existence values) are not considered, all species matter for the economy because they are all used indirectly as support for ecosystem services. Regional welfare changes from reduced quotas show the tradeoff between consumptive and non-consumptive uses of the ecosystem.     

Understanding the welfare effects of unemployment insurance policy in general equilibrium

This paper analyzes the welfare effects of unemployment insurance reforms in a general equilibrium incomplete market model. In particular, it decomposes the total welfare effect for each individual into different factors. I consider a model where the consumers face an uninsurable unemployment risk, can save in an interest-bearing asset, and are subject to a borrowing constraint. The labor market is modeled using a Diamond–Mortensen–Pissarides style search and matching model. The decomposition exercises reveal how each factor contributes to the heterogeneity of welfare effects among different consumers.     

Tariff escalation,export shares and economy-wide welfare: A computable general equilibrium approach

The current literature suggests that tariff escalation (TE) lowers the competitiveness of processing sectors. Coffee and cotton are agricultural products that face the problem of TE in developing countries, where we observe low global coffee product export shares but high global cotton textile export shares, posing a question on TE's impact on competitiveness. This paper employs a computable generalised equilibrium (CGE) modelling approach to examine the impact of TE on export shares of processed coffee and cotton textiles. We modify the standard GTAP (global trade analysis project) model to solve for global export shares and simulate the impact of eliminating TE on coffee and cotton to analyse economy-wide trade and welfare implications. Results show that TE has mixed effects on export shares, depending on the initial economic structure. Findings reveal that the elimination of TE on cotton and coffee may generate potential global gains of over US$ 0.7 billion, mainly from the cotton sector. Given the relative size of these sectors in global agriculture, the magnitude of gains is not small. This underlines the need for the policy-makers to examine, address and evaluate the prevalence of TE on a sectoral basis in ongoing WTO negotiations.     

Non-causal understanding with economic models: the case of general equilibrium

How can we use models to understand real phenomena if models misrepresent the very phenomena we seek to understand? Some accounts suggest that models may afford understanding by providing causal knowledge about phenomena via how-possibly explanations. However, general equilibrium models, for example, pose a challenge to this solution since their contribution appears to be purely mathematical results. Despite this, practitioners widely acknowledge that it improves our understanding of the world. I argue that the Arrow–Debreu model provides a mathematical how-possibly explanation which establishes claims of mathematical dependence. The account developed reveals how mathematical knowledge can inform claims about the world, allow ‘what-if-things-had-been-different’ inferences, and thus improve our understanding.     

Taxation and employment in general equilibrium: A two-sector analysis

The literature on public finance has so far completely ignored the question of unemployment. In this paper, the traditional two sector model of tax incidence is utilized to develop a model in which the effect of various taxes can be analyzed and compared. On the basis of this model, we have compared and studied the effect on employment of various equal-yield and equal-rate taxes. Also, on the basis of reasonable empirical assumptions certain policy conclusions are stated.     

A computable general equilibrium analysis of the welfare effects of trade liberalization under different market structures

Using a static world computable general equilibrium model with 16 sectors and 14 regions, this paper compares welfare effects of trade liberalization of the perfectly competitive model and eight imperfectly competitive models. Our main findings are as follows. First, the size of the welfare impact systematically depends on the type of model. Second, the welfare impact of the perfectly competitive model is not necessarily smaller than those of imperfectly competitive models. Third, the integrated market model tends to have a larger welfare impact than the segmented market model. Fourth, the model with the fixed number of firms tends to have a small welfare impact. Finally, the variety effect tends to have a stronger influence on the welfare effects of liberalization than do scale and markup effects. Differences in the models can be viewed as differences in the economic structures of the regions being analyzed, and therefore the analysis in this paper makes it possible to derive policy implications with regard to the relationship between economic structure and trade liberalization.     

Symmetric Cournot oligopoly and economic welfare: a synthesis

Summary Recently, Mankiw-Whinston (1986) and Suzumura-Kiyono (1987) have shown that socially excessive firm entry occurs in unregulated oligopoly. This paper extends this excess entry results by looking into strategic aspects of costreducing R&D investment that creates incentives towards socially excessive investments. In the first stage, firms decide whether or not to enter the market. In the second stage, firms make a commitment to cost-reducing R&D investment. In the third stage, firms compete in output quantities. It is shown that the excess entry holds even in the presence of strategic commitments.This is the synthesized version of the two earlier papers, Okuno-Fujiwara and Suzumura (1988) and Suzumura (1991). We are grateful to Professors J. Brander, D. Cass, M. Majumdar, A. Postlewaite, J. Richmond, A. Sandmo, B. Spencer and J. Vickers for their helpful comments and discussions on earlier drafts. Needless to say, they should not be held responsible for any remaining defects. Financial supports from the Japan Center for Economic Research, Tokyo Center for Economic Research, the Japanese Ministry of Education, and the Institute for Monetary and Economic Research, the Bank of Japan are gratefully acknowledged.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

An applied general equilibrium analysis of the economic effects of tourism in a quite small,quite open economy

A computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the Australian economy. The most striking conclusion is that Queensland, usually thought to be the most tourism-oriented of the Australian states, would be a net loser from an economy-wide expansion of tourism. As well as having a relatively large share of its GSP accounted for by tourist-oriented activities, Queensland is also relatively heavily dependent on agriculture and mining, traditional export sectors which are crowded out by the expansion of international tourism.     

Removal of farm subsidies in a regional economy: a computable general equilibrium analysis

There are a number of studies that examine the purchasing power parity (PPP) hypothesis. The empirical findings from the extant literature for the PPP hypothesis are mixed. This article applies univariate and panel Lagrange Multiplier (LM) unit root tests with one and two structural breaks to real exchange rates for 15 Asian countries. The univariate LM unit root tests find evidence of PPP for two-thirds of the sample. The results from the panel LM unit root test support long-run PPP for the Asian countries in the sample. The results from the LM panel unit root tests differ from those of existing panel unit root tests of PPP for Asian countries that have not allowed for the existence of structural breaks.     

Non-parametric counterfactual analysis in dynamic general equilibrium

In this paper, we examine non-parametric restrictions on counterfactual analysis in a dynamic stochastic general equilibrium model. Under the assumption of time-separable expected utility and complete markets all equilibria in this model are stationary. The Arrow-Debreu prices uniquely reveal the probabilities and discount factor. The equilibrium correspondence, defined as the map from endowments to stationary (probability-free) state prices, is identical to the equilibrium correspondence in a standard Arrow-Debreu exchange economy with additively separable utility. We examine possible restriction on this correspondence and give necessary as well as sufficient conditions on profiles of individual endowments that ensure that associated equilibrium prices cannot be arbitrary. Although restrictions on possible price changes often exist, we show that results from a representative-agent economy usually do not carry over to a setting with heterogeneous agents.     

Potential effects of scaling-up infrastructure in Peru: a general equilibrium model-based analysis

ABSTRACT

This study assesses and compares the potential economic impacts of different investment plans dedicated to filling infrastructure gaps in Peru. Using a national database at the firm level, we start by estimating empirically the positive externalities of Peruvian infrastructure, such as energy, telecommunications, and transportation facilities, on the output of private activities. In the second step, these estimates are introduced in a dynamic computable general equilibrium model used to conduct counterfactual simulations of various investment plans in infrastructure over a 15-year period. These simulations show first to what extent scaling-up infrastructure could be a worthwhile strategy to achieve economic growth in Peru; however, they also show that these benefits depend on the choice of funding schemes related to such public spending.     

Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and the non-traded good sector and unskilled labor is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We introduce involuntary unemployment equilibrium in both the labor markets and explain unemployment using efficiency wage hypothesis. We examine the effects of change in different factor endowments and prices of traded goods on the unemployment rates and on the skilled-unskilled relative wage. Also, we introduce Gini-Coefficient of wage income distribution as a measure of wage income inequality; and show that a comparative static effect may force the skilled-unskilled relative wage and the Gini-Coefficient of wage income distribution to move in opposite directions in the presence of unemployment.     

Carbon leakages: a general equilibrium view

The effectiveness of unilateral action to curb carbon emissions has been dismissed because of possible “carbon leakages”, this referring to the rise of emissions in non-participating countries. This paper offers a general equilibrium (GE) exploration of the key mechanisms and factors underlying the size of carbon leakages. We developed a two-region, two-goods simplified GE framework, incorporating three types of fossil fuels (coal, oil and low-carbon energy), international trade and capital mobility. The model was designed to make tractable extensive multidimensional sensitivity analysis. The results suggest that the coal supply elasticity plays a critical role, while substitution elasticities between traded goods and international capital mobility appear relatively less influential. The shape of the production function also matters for the size of the leakages. Confirming the results obtained with large computable GE models, for a wide range of parameters’ values, carbon leakages appear to be small. Therefore, the argument that unilateral carbon abatement action taken by a large group of countries (such as the Annex 1 group) is flawed by significant carbon leakages is not supported by our sensitivity analysis. The likelihood of small leakages favours in fact the formation of a worldwide coalition to stabilise climate change.