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A Tutorial on Building Policy Models as Mixed-Complementarity Problems

Author

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  • Frederic Murphy

    (King Abdullah Petroleum Studies and Research Center, Riyadh, Saudi Arabia; and Fox School of Business, Temple University, Philadelphia, Pennsylvania 19103)

  • Axel Pierru

    (King Abdullah Petroleum Studies and Research Center, Riyadh, Saudi Arabia)

  • Yves Smeers

    (King Abdullah Petroleum Studies and Research Center, Riyadh, Saudi Arabia; and Center for Operations Research and Econometrics (CORE), Université Catholique de Louvain, Louvain la Neuve, Belgium B-1348)

Abstract

After 50 years of development, building and solving mixed-complementarity problems (MCPs) have become commonplace for policy models that analyze markets. These models are used to develop policies that reshape markets, or introduce markets that replace other organizational forms. In this tutorial, we give some background on building economic equilibrium models, starting with the use of linear programming, and show how MCPs can be used to answer policy questions that require manipulation of the solutions to linear programs of economic sectors. We illustrate the use of MCPs using examples from King Abdullah Petroleum Studies and Research Center projects, including a model of domestic energy markets in Saudi Arabia, which is in the process of changing some of its pricing policies and market regulations.

Suggested Citation

  • Frederic Murphy & Axel Pierru & Yves Smeers, 2016. "A Tutorial on Building Policy Models as Mixed-Complementarity Problems," Interfaces, INFORMS, vol. 46(6), pages 465-481, December.
    • Handle: RePEc:inm:orinte:v:46:y:2016:i:6:p:465-481
    DOI: 10.1287/inte.2016.0842
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    8. Matar, Walid & Murphy, Frederic & Pierru, Axel & Rioux, Bertrand & Wogan, David, 2017. "Efficient industrial energy use: The first step in transitioning Saudi Arabia's energy mix," Energy Policy, Elsevier, vol. 105(C), pages 80-92.
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    10. Rioux, Bertrand & Galkin, Philipp & Murphy, Frederic & Feijoo, Felipe & Pierru, Axel & Malov, Artem & Li, Yan & Wu, Kang, 2019. "The economic impact of price controls on China's natural gas supply chain," Energy Economics, Elsevier, vol. 80(C), pages 394-410.
    11. Le Cadre, Hélène & Mou, Yuting & Höschle, Hanspeter, 2022. "Parametrized Inexact-ADMM based coordination games: A normalized Nash equilibrium approach," European Journal of Operational Research, Elsevier, vol. 296(2), pages 696-716.
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    13. Chuangyin Dang & P. Jean-Jacques Herings & Peixuan Li, 2022. "An Interior-Point Differentiable Path-Following Method to Compute Stationary Equilibria in Stochastic Games," INFORMS Journal on Computing, INFORMS, vol. 34(3), pages 1403-1418, May.
    14. Thomaßen, Georg & Redl, Christian & Bruckner, Thomas, 2022. "Will the energy-only market collapse? On market dynamics in low-carbon electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).
    15. Durand-Lasserve, Olivier & Almutairi, Hossa & Aljarboua, Abdullah & Pierru, Axel & Pradhan, Shreekar & Murphy, Frederic, 2023. "Hard-linking a top-down economic model with a bottom-up energy system for an oil-exporting country with price controls," Energy, Elsevier, vol. 266(C).
    16. Rodríguez-Pose, Andrés & Belso-Martinez, Jose Antonio & Díez-Vial, Isabel, 2021. "Playing the innovation subsidy game: experience, clusters, consultancy, and networking in regional innovation support," LSE Research Online Documents on Economics 111603, London School of Economics and Political Science, LSE Library.
    17. Scott, Ian J. & Botterud, Audun & Carvalho, Pedro M.S. & Silva, Carlos A. Santos, 2020. "Renewable energy support policy evaluation: The role of long-term uncertainty in market modelling," Applied Energy, Elsevier, vol. 278(C).
    18. Gauthier de Maere d’Aertrycke & Yves Smeers & Hugues de Peufeilhoux & Pierre-Laurent Lucille, 2020. "The Role of Electrification in the Decarbonization of Central-Western Europe," Energies, MDPI, vol. 13(18), pages 1-20, September.
    19. Hélène Le Cadre & Yuting Mou & Hanspeter Höschle, 2020. "Parametrized Inexact-ADMM to Span the Set of Generalized Nash Equilibria: A Normalized Equilibrium Approach," Working Papers hal-02925005, HAL.

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