A Practical Method for Explicitly Modeling Quotas and Other Complementarities
To make CGE models realistic, inequality constraints (e.g., import quotas) or non-differentiable functions (e.g., income tax schedules) are sometimes needed. Both situations may be described using complementarity conditions, which state that either an equation is true or its complementary variable is at a boundary value. The paper describes a practical way to solve CGE models that contain such conditions. The technique, which is different from complementarity algorithms commonly used elsewhere (e.g., GAMS), has been implemented in the current version of the GEMPACK system, and has been used in a number of applications. This paper explains why the solution methods used in previous versions of GEMPACK do not handle complementarity conditions well, and describes how a two-pass procedure can overcome these difficulties. The key insight is that if we knew in advance which constraints would be binding in the accurate solution, the complementarity conditions could be reformulated in terms of smooth functions only, via a closure change which allows us to ignore the troublesome equations.
Volume (Year): 23 (2004)
Issue (Month): 4 (06)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=100248|
More information through EDIRC
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.:
- K.R. Pearson, 1991. "Solving Nonlinear Economic Models Accurately Via a Linear Representation," Centre of Policy Studies/IMPACT Centre Working Papers ip-55, Victoria University, Centre of Policy Studies/IMPACT Centre.
- Elbehri, Aziz & Ken Pearson, 2000. "Implementing Bilateral Tariff Rate Quotas in GTAP using GEMPACK," GTAP Technical Papers 475, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:23:y:2004:i:4:p:325-341. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.