Edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman
Chapter 2: General Equilibrium Models for Transportation Economics
Johannes Bröcker and Jean Mercenier INTRODUCTION Applied – or computable – general equilibrium models (AGE or CGE) build on rigorous modelling of microeconomic agents’ behaviours (households, firms and so forth). These agents are exposed to signals (in prices, quantities and so forth) provided by markets (for goods, assets, production factors and so forth). Agents make decisions by explicit maximization of their own criterion (utility, profits, portfolio returns and so forth). These choices determine their positions on each market. From the interaction between these supply and demand decisions, and conditional on the form of organization that prevails on each market (perfect competition, monopolistic or oligopolistic competition and so forth), new signals emerge that feed back on the optimal decisions of all agents. The general equilibrium (GE) typically describes a stable state of consistency between these individual decisions: when the signals that condition individual choices coincide with those emitted by markets so that there is no incentive for anyone to change position. The computation of a GE therefore consists in determining a system of signals and an allocation between individuals, sectors of activities, regions, possibly time periods and so forth, such that all agents are at their optimum yet satisfying their respective constraints (budget, technological and so forth) and that the set of transactions conducted on each market corresponds to the desired set of transactions by all agents simultaneously. Governments of course have the ability to influence both directly (by taxes, transfers and so forth) and indirectly (by their own demand and supply...
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