Background General equilibrium Critical aspects (Sm)arctic Arctic scenarios Building an arctic GE model Applying the model

Transcription

1 Sami Niemelä

2 Background General equilibrium Critical aspects (Sm)arctic Arctic scenarios Building an arctic GE model Applying the model

3 Personal level Masters thesis: numeric GE: existence of GE, computing algorithms Licentiate thesis: model building, applying models In between and after: teaching, R&D activities The world of GE CGE, AGE still alive, some confusion observable (Modestly) increasing number of applications Some commited institutions, researchers

4 Léon Walras ( ): general equilibrium theory Elegant, interesting and even exciting (?) Walras s law: excess demand equal to zero Approaching equilibrium: tâtonnement Arrow-Debreu model (1954): formalised Walras s law Numerics (computation) Existence (Scarf: Brouwer s/kakutani s fixed point theorems + Walras s law -> Proof of existence) Computation (Proof of existence -> algorithm) Numeric models : eventually problems involving as many as twenty commodities will be feasible without an excessive use of computing time (Scarf 1967)

5 Numeric/computable/applied GE: recent development Technological development -> speed and accuracy Confusing concepts CGE: computable general equilibrium AGE: applied general equilibrium Computation of (general) equilibrium (prices) It has been claimed that modern AGE is actually CGE and CGE does not have much to do with original GE framework (e.g. Mitra-Kahn, 2008)

6 Define economy to invetigate Establish existence of general equilibrium (Arrow-Debreu) Input data into all sectors Apply Scarf s (or some refined) algorithm Decide cut-off -> approximation of equilibrium prices

7 Collect basic data (Social accounting matrix) -> Benchmark equilibrium (adjust for consistency) Choose functional forms, define exogenous parameters Calibrate (to benchmark equilibrium) and check Define police change Compute counterfactual equilibrium Compare counterfactual to benchmark

8 Walrasian world What did Léon actually write and mean? Is neo-walrarsian Walrarian at all? Is it reasonable to refer to Walrasian general equilibrium as a common ground? Sonnenschein Mantel Debreu Aggregate excess demand function? -> unique general equilibrium? Is it reasonable to use models inclined to SMD issues to analyse big changes? Modelling practices Functional forms Parameters Is it reasonable to present rather typical and convenient microeconomic background with this kind of (i.e. CGE) studies?

9 Comparative statics Application refers to comparing computed (counterfactual) equilibria to existing (observed) basic year (defined as benchmark equilibrium) Is it reasonable to use static models when investigated time period may extent over decades?

10 Policy analysis Tax models, trade models, investments Global, national, regional And so on Is it reasonable to assume that GE approach is the most suitable/efficient (let alone only) one in all types of policies and other changes, in all contexts?

11 Circumpolar arctic 11% of global surface, 0,2% of world population, 0,5% of global GDP Oil, Natural gas, minerals (Zn, Cu, Ni, Au, Ag ) Fishing, forestry, energy production, tourism Smarctic Tekes funded multidisciplinary project Univ. of Oulu, Oulu univ. of applied sciences, VTT Themes: Mobile technology, Smart logistics, Natural resources, Human in north Evaluated scenarios Strategic roadmap Business opportunites

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13 Climate change Sea routes and logistics in general Primary production Tourim Other effects More/less intensive use of existing and yet to be found resources Energy production

14 To sum up: arctic future Some changes are likely to happen So far case-by-case approach (or not even that) Most scenarios seem to have multiple effects (simultaneous or chained) Most scenarios seem to require policy actions It would be beneficial to evaluate total economic effects of scenarios -> justification for a GE approach?

15 Computable or nothing? A CGE model: Arctic region rest of the world Data collection (regional input/output -> SAM) Model specifications Level of disaggregation Functional forms Exogenous parameters Special issues (e.g. unemployment, migration, trade) Calibration and check How about an original, neo-walrasian AGE model?

16 Take a scenario Identify the effects of scenario to the elements included in the model, e.g. more production activities in service sector, less in manufacturing increase in rents, decrease in telecommunication prices And so on Then compute a new general equilibrium and analyse the effects NB: even a preliminary glance at the scenarios reveals a vast amout of possible effects to be defined

17 Something is about to happen in the Arctic Whatever happens it is likely to have widespread economic effects Nobody seems to know how to (or has interest in) evaluate these economic effects (for instance, there are 27 thematic networks within University of Arctic consortium and none of them is about economics) There is nothing too special about circumpolar arctic that would prevent economic analysis

18 GE is one fascinating approach GE and especially CGE/AGE are not without questionable elements (but then again, which economic theory/tool is?) Could a typical CGE model be sometimes the most reasonable choice? Could this (Arctic scenarios) be a justified case for a CGE model? Could there be something meaningful to achieve with traditional AGE approach?

19 Arrow Hahn (1971): General Competitive Analysis Glomsrød Aslaksen (eds.) (2008): The Economy of North 2008 Mitra-Kahn (2008): Debunking the Myths of Computable General Equilibrium Models Scarf (1967): On the Computation of Equilibrium Prices Scarf (1982): The Computation of Equilibrium Prices: An Exposition Shoven Whalley (1992): Applying General Equilibrium

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