Ginsburgh & Keyzer: The Structure of AGE Models

Ginsburgh, Victor and Michiel Keyzer. (1997). The structure of applied general equilibrium models. Cambridge Mass.: MIT Press.

“This book describes the structure of general equilibrium models. It is written for the researcher who intends to construct or study applied general equilibrium (AGE models and has a special interest in their theoretical background. Both general equilibrium theory and AGE modeling continue to be active fields of research, but the styles of presentation differ greatly. Whereas the applied model builder often finds the style of theoretical papers inaccessible, the theoretician can hardly recognize the concepts he is used to in the list of equations of applied models. The main purpose of the book is to present the theoretical models in a unified way and to indicate how the main concepts can find their way into applications” (xiii).

The book then goes on to do this in an apparently thorough way.

UPDATE:

"Profit-maximizing behavior has been questioned in two respects: Do producers have access to all the information that they need to optimize? Is profit maximization a rational rule of conduct for the owners of the firm? With respect to the first issue, in reality producers are obviously faced with uncertainty about their external environment...and about their own production set...Therefore, in applications, one maintains profit maximization but accounts for uncertainty by restricting the production set through additional constraints. For example, one excludes highly unreliable techniques or limits the options for substitution" (41-2).

"In the literature, general equilibrium models are presented in very different ways. Some are written in terms of excess demand, as in section 1.3, others in terms of welfare programs, as in section 1.4" (91). "When the structure of the model is changed, say, to introduce international trade, taxes, or external effects, or when some assumptions are relaxed, such as allowing for nonconvexities, one format is usually best suited for proofs of existence of equilibrium; another should possibly be used for analysis of efficiency, and yet others for applied work and for computation. However, it should be stressed that all formats describe the same model and lead to the same equilibrium solutions" (91).

Basic format of CGE: Goods and Factors: economy is separated into goods and factors; Production Sets: every producer supplies a single good, every good requires factors; Endowments: factors are owned by consumers; Utility: consumers have utility that is continuous, strictly quasiconcave and nonsatiated (109-10).

"We will consider that a model is written in CGE format when it is specified as a system of simultaneous equations consisting of commodity balances...for goods and factors, price equations...for goods and budget equations..." (110).