Scrieciu: The Inherent Dangers of Using CGE models as a single integrated modelling framework for SIA

Scrieciu, S. S. (2007). The inherent dangers of using computable general equilibrium models as a single integrated modelling framework for sustainability impact assessment. A critical note on Böhringer and Löschel (2006) (Vol. 60, 678-684): Elsevier.

This paper is a response to another paper printed in Ecological Economics that claims that CGE models offer a good “back-bone” in order to carry out Sustainability Impact Assessments (SIAs) from a modeling perspective. This author claims that, while there may be some benefits to the CGE approach vis-à-vis SIAs, there are also problems that arise. In other words, CGEs for SIAs are not a panacea. “This commentary is…a critique against the claim that the CGE modeling approach may have the potential to perform satisfactory and reliable SIAs, and strongly argues that the course of action targeting sustainability should not be dictated by the sole, or even primarily, use of this type of economic models” (679).

The economic theory that underpins CGEs:

The assumptions of rationality, etc., tend to over-emphasize the role of the market in solving problems associated with environmental degradation, etc. These approaches, “…fail to appropriately account for the institutional arrangements, ethical issues and the developmental needs of a society within an inter-disciplinary, pluralistic, holistic and dynamic approach” (680). The author questions the possibility of equilibrium ever being reached in a real-world scenario.

Another critique of modeling more generally is that, if models are based on theories that are not empirically grounded, then it is possible for the modeler to present their own values within the model more generally. For example, if the modeler believes that trade and productivity are tied to growth, then this can be produced in the model and may have substantive effects on actual policy interventions.

The author ends his piece by acknowledging that CGEs can be useful if they are deployed transparently, and that they are clearly helpful in some economic policy analysis.