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Chapter 20: CGE Modeling in Space: A Survey
20 CGE modeling in space: a survey Kieran P. Donaghy1 20.1 Introduction: computable general equilibrium models Quantitative general equilibrium analysis of an economy based on principles of microeconomic reasoning has represented the high ground that theoretical and applied economists have sought to occupy since theories of economy-wide behavior were ﬁrst formulated. Economists have been interested not only in directions of change in the values of critical variables, induced by policies or exogenous shocks, but also in magnitudes, reﬂecting compensating systemic adjustments. Economists have also needed the capacity to conduct quantitative general equilibrium analyses to make headway with theoretical arguments in which, because of non-linearities in functional forms or the number and complexity of assumptions, it is diﬃcult to isolate the eﬀects of a change in an assumption. Yet, until relatively recently, because of limitations in data availability or computational know-how and capacity, they have had to settle for quantitative but partial-equilibrium analysis or purely qualitative – and therefore often indeterminate – comparative-statics analysis. In the last 50 years or so, great strides have been made in what has been termed applied general equilibrium (AGE) or computable general equilibrium (CGE) analysis.2 By standard accounts – for example Shoven and Whalley (1992) – the emergence of CGE modeling is owed to the happy coincidence of Johansen’s (1960) multi-sectoral study of economic growth, Harberger’s (1962) analysis of tax policies, and Scarf’s (1967) and Scarf and Hansen’s (1973) work on conditions for the existence of and algorithms for computation of Walrasian equilibria. Much of the...
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