Adelman & Robinson: Macroeconomic Adjustment and Income Distribution

Adelman, Irma and Sherman Robinson. (1988). "Macroeconomic adjustment and income distribution : Alternative models applied to two economies". Journal of Development Economics, 29(1), 23-44. http://www.sciencedirect.com:80/science/article/B6VBV-45NHVST-10/1/8f843dd9b8dd40cd989877c99456f484\par

This paper attempts to rectify a disagreement about the distributional capabilities that resulted from two earlier CGE model deployments.

“In the development literature, CGE models trace their lineage back to the input-output based multisector models widely applied to problems of planning in developing countries in the 1960s. While firmly based on the foundations of Walrasian general equilibrium theory, a CGE model can also be seen as a logical culmination of a trend in the planning model literature to add more and more substitutability and non-linearity to the basic input-output model. A CGE model works by: (1) specifying the various actors in the economy (for example, firms, households, government, and the rest of the world); (2) describing their motivation and behavior (utility maximization for consumers and profit maximization for firms); (3) specifying the institutional structure, including the nature of market interactions (competitive markets for goods and labor); and (4) solving for the equilibrium values of all endogenous variables. The model simulates the working of a market economy and solves for a set of prices…that clears all markets…The model is highly non-linear with neoclassical production expenditure functions, and incorporates a variety of substitution possibilities in production and demand” (25).

These models were initially used to examine how tax structures effected a Walrasian economic system. This base has been built upon by modelers, who have added to it more “structural” features that are not a part of neoclassical economic theory. The paper goes on in much detail to examine CGE models. I stopped here.