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A New Decomposition Method for Multiregional Economic Equilibrium Models

Author

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  • William Chung

    (Department of Management Sciences, City University of Hong Kong, Kowloon Tong, Hong Kong, China)

  • J. D. Fuller

    (Department of Management Sciences, University of Waterloo, Waterloo, Ontario, Canada N2L 3G1)

  • Y. June Wu

    (Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, Ontario, Canada M5B 2K3)

Abstract

This paper discusses decomposition of a multiregional economic equilibrium model that is characterized by a cost minimizing, linear programming (LP) model of the supply side and a vector-valued function that gives demand prices as functions of the quantities demanded. Our motivation is to ease model development and maintenance by a solution method that links separately developed regional models only when a consistent multiregion solution is desired. A heuristic strategy is described to extend any existing (LP) decomposition principle to a procedure for decomposing an equilibrium model by region. This strategy is applied to extend Dantzig-Wolfe decomposition to the multiregional economic equilibrium model, and several theoretical results are derived for the resulting algorithm. The central result is a proof of asymptotic convergence, under usefully general conditions. The extended Dantzig-Wolfe procedure is illustrated with an existing, two-region model of Canadian energy supplies and demands.

Suggested Citation

  • William Chung & J. D. Fuller & Y. June Wu, 2006. "A New Decomposition Method for Multiregional Economic Equilibrium Models," Operations Research, INFORMS, vol. 54(4), pages 643-655, August.
    • Handle: RePEc:inm:oropre:v:54:y:2006:i:4:p:643-655
    DOI: 10.1287/opre.1060.0274
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    References listed on IDEAS

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    Cited by:

    1. Fuller, J. David & Chung, William, 2008. "Benders decomposition for a class of variational inequalities," European Journal of Operational Research, Elsevier, vol. 185(1), pages 76-91, February.
    2. William Chung & J. David Fuller, 2010. "Subproblem Approximation in Dantzig-Wolfe Decomposition of Variational Inequality Models with an Application to a Multicommodity Economic Equilibrium Model," Operations Research, INFORMS, vol. 58(5), pages 1318-1327, October.

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