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Introducing Imperfect Competition in CGE Models:Technical Aspects and Implications

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  • Roberto Roson

    ()
    (Department of Economics, University Of Venice Ca’ Foscari)

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    Abstract

    This paper considers the technical aspects and the consequences, in terms of simulation results and policy assessment, of introducing imperfect competition in a CGE model. The modifications to the standard CGE framework needed to model imperfect competition in some industries are briefly discussed. Next, the paper examines whether, how much and why, those changes may affect the qualitative output a typical simulation experiment. It is argued that technical choices made in designing the model structure may have a significant impact on the model behavior. This is especially evident when the model output of an imperfect competition closure is compared with the one of a standard closure, assuming perfect competition. As an illustration, a simulation of agricultural trade liberalization is analyzed. Results from the same simulation exercise, but produced by alternative model formulations (one standard competitive and three imperfect competition variants) are presented and discussed. It is found that having imperfect competition in a CGE model does matter in terms of simulation results. Furthermore, alternative formulations of imperfect competition typically bring about quite different findings and implications.

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    File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2006/WP_DSE_Roson_02_06.pdf
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2006_02.

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    Length: 22 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:ven:wpaper:2006_02

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    Related research

    Keywords: Computable General Equilibrium Models; Imperfect Competition; Oligopolistic Models; Economies of Scale; Empirical Industrial Organization; Agriculture; Trade Liberalization; Trade Policy.;

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    1. Richard Harris, 1983. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," Working Papers 524, Queen's University, Department of Economics.
    2. W. Jill Harrison & K.R. Pearson, 1994. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Centre of Policy Studies/IMPACT Centre Working Papers ip-64, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Francois, Joseph, 1998. "Scale Economies and Imperfect Competition in the GTAP Model," GTAP Technical Papers 317, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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