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

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  • Mercenier, Jean

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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Bibliographic 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

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Citations

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Cited by:
  1. Mercenier, Jean & Yeldan, A. Erinc, 1996. "On Turkey's European Trade Policy: How Desirable is a Status Quo," 1996: Implications of the New Growth Theory to Agricultural Trade Research and Trade Policy Conference, December 1996, Washington DC 50865, International Agricultural Trade Research Consortium.
  2. Pierre Picard & Takatoshi Tabuchi, 2007. "Self-organized Agglomerations and Transport Costs," The School of Economics Discussion Paper Series 0712, Economics, The University of Manchester.
  3. Ghosh, Madanmohan & Rao, Someshwar, 2005. "A Canada-U.S. customs union: Potential economic impacts in NAFTA countries," Journal of Policy Modeling, Elsevier, vol. 27(7), pages 805-827, October.
  4. Patrick Georges, 2007. "Toward a North American Customs Union Rules of Origin Liberalization Matters More than a Common External Tariff for Canada," Working Papers 0704E, University of Ottawa, Department of Economics.
  5. Dakhlia, Sami, 1999. "Testing for a unique equilibrium in applied general equilibrium models," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1281-1297, September.
  6. Klaus Ritzberger & Frank Milne, 2002. "Strategic pricing of equity issues," Economic Theory, Springer, vol. 20(2), pages 271-294.
  7. Mercenier, Jean & Yeldan, Erinc, 1999. "A Plea For Greater Attention on the Data in Policy Analysis," Journal of Policy Modeling, Elsevier, vol. 21(7), pages 851-873, December.
  8. Mercenier, J. & Akitoby, B., 1994. "On Intertemporal General-Equilibrium Reallocation Effects of Europe's Move to a Single Market," Cahiers de recherche 9401, Universite de Montreal, Departement de sciences economiques.
  9. Conrad, Klaus, 2001. "Computable General equilibrium Models in Environmental and Resource Economics," Discussion Papers 601, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  10. 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.
  11. Dirk Willenbockel, 2005. "The Price Normalisation Problem in General Equilibriun Models with Oligopoly Power: An Attempt at Perspective," GE, Growth, Math methods 0505002, EconWPA.
  12. 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).

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