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Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition

  • Jean Mercenier

Applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. They offer a natural framework for testing the empirical relevance of propositions from the industrial organization and new trade theoretical literature. This paper warns model builders and users that considerable caution is needed in interpreting the results and deriving strong policy conclusions from these models: 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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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 183.

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Date of creation: 1994
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Handle: RePEc:fip:fedmsr:183
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  1. 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.
  2. Victor Ginsburgh, 1994. "In the Cournot-Walras general equilibrium model, there may be 'more to gain' by changing the numeraire than by eliminating imperfections: a two-good economy example," ULB Institutional Repository 2013/1885, ULB -- Universite Libre de Bruxelles.
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  6. 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.
  7. 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.
  8. 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.
  9. Bonanno, Giacomo, 1990. " General Equilibrium Theory with Imperfect Competition," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 297-328.
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  11. 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.
  12. 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.
  13. Shantayanan Devarajan & Dani Rodrik, 1989. "Pro-Competitive Effects of Trade Reform: Results from a CGE Model of Cameroon," NBER Working Papers 3176, National Bureau of Economic Research, Inc.
  14. 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.
  15. 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.
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  24. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  25. Robert GARY-BOBO, 1988. "Equilibre général et concurrence Imparfaite : un tour d’horizon," Discussion Papers (REL - Recherches Economiques de Louvain) 1988012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  26. 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.
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