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Nonuniqueness of Solutions in Applied General Equilibrium Models with Scale Economies and Imperfect Competition

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Author Info
Mercenier, Jean

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Abstract

Since the publication of Harris (1984), applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. Their attractiveness comes from their offering a natural framework for testing the empirical relevance of numerous propositions from the industrial organization and new trade theoretical literature. Their role in the recent debates on the North American Free Trade Agreement demonstrates their potential importance in policy analysis. This paper warns model builders and users that considerable caution is however needed in interpreting the results and in deriving strong policy conclusion from these models: it is shown that in this generation of applied general equilibrium models, nonuniqueness of equilibria is not a theoretical curiosum, but a potentially serious problem. Disregarding this may lead to dramatically wrong policy appraisals.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 6 (1995)
Issue (Month): 1 (June)
Pages: 161-77
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Handle: RePEc:spr:joecth:v:6:y:1995:i:1:p:161-77

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Timothy J. Kehoe, 1985. "The Comparative Statics Properties of Tax Models," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 314-34, May. [Downloadable!] (restricted)
  2. Srinivasan, T.N. & Kletzer, K., 1994. "Price Normalization and Equilibria in General Equilibrium Models of International Trade Under Imperfect Competition," Papers 710, Yale - Economic Growth Center.
  3. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the Internal Market in the European Community: Some Industry Simulations," CEPR Discussion Papers 233, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Kehoe, Timothy J, 1985. "Multiplicity of Equilibria and Comparative Statics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 119-47, February. [Downloadable!] (restricted)
  5. Bonanno, Giacomo, 1990. " General Equilibrium Theory with Imperfect Competition," Journal of Economic Surveys, Blackwell Publishing, vol. 4(4), pages 297-328.
  6. Maskin, Eric & Tirole, Jean, 1987. "A theory of dynamic oligopoly, III : Cournot competition," European Economic Review, Elsevier, vol. 31(4), pages 947-968, June. [Downloadable!] (restricted)
  7. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May. [Downloadable!] (restricted)
  8. Markusen, James R & Wigle, Randall M, 1989. "Nash Equilibrium Tariffs for the United States and Canada: The Roles of Country Size, Scale Economies, and Capital Mobility," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 368-86, April. [Downloadable!] (restricted)
  9. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Pro-competitive effects of trade reform : Results from a CGE model of Cameroon," European Economic Review, Elsevier, vol. 35(5), pages 1157-1184, July. [Downloadable!] (restricted)
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  10. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
  11. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December. [Downloadable!] (restricted)
  12. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade Liberalization in a Multinational-Dominated Industry: A Theoretical and Applied General-Equilibrium Analysis," NBER Working Papers 3679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September. [Downloadable!] (restricted)
  14. Venables, Anthony J., 1984. "Multiple equilibria in the theory of international trade with monopolistically competitive commodities," Journal of International Economics, Elsevier, vol. 16(1-2), pages 103-121, February. [Downloadable!] (restricted)
  15. Cox, David & Harris, Richard, 1985. "Trade Liberalization and Industrial Organization: Some Estimates for Canada," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 115-45, February. [Downloadable!] (restricted)
  16. Kehoe, Timothy J. & Whalley, John, 1985. "Uniqueness of equilibrium in large-scale numerical general equilibrium models," Journal of Public Economics, Elsevier, vol. 28(2), pages 247-254, November. [Downloadable!] (restricted)
  17. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February. [Downloadable!] (restricted)
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  18. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  19. Kehoe, Timothy J, 1980. "An Index Theorem for General Equilibrium Models with Production," Econometrica, Econometric Society, vol. 48(5), pages 1211-32, July. [Downloadable!] (restricted)
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  20. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June. [Downloadable!] (restricted)
  21. Brown, D.K. & Stern, R.M., 1988. "U.S.-Canada Bilateral Tariff Elimination: The Role Of Product Differentiation And Market Structure," Working Papers 227, Research Seminar in International Economics, University of Michigan.
  22. Markusen, James R. & Venables, Anthony J., 1988. "Trade policy with increasing returns and imperfect competition : Contradictory results from competing assumptions," Journal of International Economics, Elsevier, vol. 24(3-4), pages 299-316, May. [Downloadable!] (restricted)
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  23. Kemp, Murray C & Schweinberger, Albert G, 1991. "Variable Returns to Scale, Non-uniqueness of Equilibrium and the Gains from International Trade," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 807-16, July. [Downloadable!] (restricted)
  24. Roberts, John & Sonnenschein, Hugo, 1977. "On the Foundations of the Theory of Monopolistic Competition," Econometrica, Econometric Society, vol. 45(1), pages 101-13, January. [Downloadable!] (restricted)
  25. Randall Wigle, 1988. "General Equilibrium Evaluation of Canada-U.S. Trade Liberalization in a Global Context," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 539-64, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Willenbockel, 2005. "The Price Normalisation Problem in General Equilibriun Models with Oligopoly Power: An Attempt at Perspective," GE, Growth, Math methods 0505002, EconWPA. [Downloadable!]
  2. Gustavo Gonzaga & Maria Cristina Terra & Jorge Cavalcante, 1997. "O impacto do Mercosul sobre o emprego setorial no Brasil," Textos para discussão 382, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  3. Kimakova, Alena & Rajabiun, Reza, 1999. "An Applied General Equilibrium Analysis of EU Integration for Hungary and Slovakia," Transition Economics Series 9, Institute for Advanced Studies. [Downloadable!]
  4. Jean Mercenier & Bernardin Akitoby, 1993. "On intertemporal general-equilibrium reallocation effects of Europe's move to a single market," Discussion Paper / Institute for Empirical Macroeconomics 87, Federal Reserve Bank of Minneapolis. [Downloadable!]
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