CGE and PE Model Families - Bioversity International

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Global Computable General
Equilibrium and Partial
Equilibrium Models: CGE/PE
Sherman Robinson
International Food Policy Research Institute (IFPRI)
Bioversity Workshop, Rome, May 7-8, 2015
CGE and PE Model Families
• Relative strengths of different global models
with an agricultural focus: CGE and PE models
– Relevance for issues of biodiversity and ecosystem
services in Foresight Models
• Exploiting comparative advantages of different
model systems
– Modularity within and between model families
– “Soft” and “hard” linking different models
• Data bases: estimation and management
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Global CGE Models: GLOBE/MIRAGE
• Global CGE models simulate the interaction of
national economies across world markets
– Determine national and world market prices
• CGE models are “complete”: they incorporate all
economic activity in the economies simulated
– Production (supply), income to “agents” (households,
govt., enterprises), demand (C, I, G), exports/imports,
prices, wages, land rents, exchange rates
– Markets “clear”: supply/demand equilibrium
conditions determine prices, wages, profits, land rents
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CGE: Circular Flow of Income
Factor
Markets
Factor
Costs
Producers
Demand for
Intermediate
Inputs
Sales
Revenues
Domestic Private Savings
Wages
&
Rents
Gov. Savings
Taxes
Households
Government
Saving/INV
Transfers
Product
Markets
Private
Consumption
Government
Expenditure
Investment
Demand
Demand for Final Goods
Imports
Exports
Rest of the
World
Foreign Savings
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CGE: Deep Structural Models
• Includes “representative” economic agents:
– Utility-maximizing consumers (households)
• Expenditure functions, given budget constraints
– Profit-maximizing producers
• Maximize profits given technology and prices
• Yields factor demands, given wages and prices
• Wages/prices are “signals” on all markets
• Market “institutions”: competitive markets with
agents who cannot manipulate prices
– Supply=demand determines prices
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CGE: Completeness
• CGE models are “closed” in the sense that they
account for all economic activity: no “leakages”
• SAM accounting framework: describes the
economic “universe” of the models
– Double-entry bookkeeping: expenditure/receipt
accounts of all economic agents must balance
• General equilibrium theory/practice: powerful
discipline for modelers
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CGE: “Equilibrium” as Descriptive
• CGE models impose strong market equilibrium
conditions:
– Supply = demand in product and factor markets
• If these equilibrium conditions are “descriptive”
or “realistic”, then the model solution is realistic
– Fundamental to lots of economics
– Advantage: do not have to describe the process by
which equilibrium is achieved, just the solution
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CGE: Direct and Indirect Effects
• PE models (GLOBIOM, IMPACT) are “partial” and
do not include links between agricultural and
non-agricultural sectors
• CGE models include all direct/indirect links across
the economy: PE models miss them
– Indirect effects (forward and backward linkages) are
empirically important
• Shocks to agriculture “leak” to the rest of the
economy: prices and factor flows
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CGE/PE: Welfare Analysis
• PE models: “welfare” effects are measured by
changes in consumer and producer surplus:
– Areas under supply and demand curves
– OK for single markets, questionable for multi-markets
• CGE models: “completeness” makes welfare
calculation easier and theoretically well grounded
– Changes in “absorption” or utility measures (EV/CV)
• CGE: utility and complete expenditure functions
• PE: simple “reduced-form” demand curves
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CGE/PE: Production
• CGE models: technology specified wit smooth
neoclassical production functions (CES, nested)
– Yield complete cost functions—all input costs included
– “Deep structural”: technology, motivation (profit
maximization) , and “signals” (prices) are all specified
– Problem: for agriculture, nested CES functions are not
viewed as “realistic” specification of technology
• PE models: focus on land and seeds—area/yield
specification of production technology
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PE: Production/Supply
• GLOBIOM: “Deep structural” specification of
production. Activity analysis specification of
technology determining areas and yields
• IMPACT: “Reduced form” specification, with priceresponsive demand/supply functions of land and
crop yields. More aggregated than GLOBIOM
• Both PE models use crop simulation models
(DSSAT/EPIC) to specify underlying biology of crop
response to “shocks” (temperature/water)
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PE Model System: Modularity
• IMPACT 3 is a suite of linked models
– Core PE, multi-market model of global production,
demand, and trade
– Water models: (1) hydrology, (2) water basin
management, and (3) water stress response
• Models run on a monthly time step, then linked to the core
multi-market model
– Livestock model: Value chain from herds to meat
• Many livestock production systems
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PE Model System: Modularity
• Land use: (1) Allocation of land to different uses
(pasture, forest, irrigated crop, rain-fed crop), (2)
Allocation of different crops to irrigated and rainfed crop land
• Sugar value chains: sugar cane and beet to
processed sugar
• Oil seeds value chains: oil seeds to oils and meals
• Fisheries
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PE Models: Agricultural Detail
• The PE models provide much more disaggregated
description of agriculture than the CGE models
– Regional, land, and crop disaggregation
– Focus on crop inputs and biology: seeds, water, light,
heat, nutrients: process technologies
• Better host for analysis of issues of biodiversity
and ecosystem services
– Links to land use models
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CGE/PE: Modularity and Linkages
• Potential for “soft” and “hard” linking of different
model families: CGE/PE
• CGE models to include ag/non-ag linkages,
income flows, and welfare analysis,
• PE models to specify agricultural production
technology in detail
• Communication between the models
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Thank you
[email protected]
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