Variational Inequality Approach to Multi-Regional Computable General Equilibrium Modeling

Abstract

This paper proposes a general framework for analyzing multi-regional CGE models. The framework is based on the theory of Variational Inequality Problems, which gives us the systematic methods for two indispensable works in developing the CGE models: analyzing the properties of the models such as existence, uniqueness and stability of equilibria; developing the efficient and convergent algorithms for solving equilibria of the large scale models. In this paper, we first show the framework using a prototype multi-regional CGE model, and then consider a particular model that reduces to a convex programming, which demonstrates a typical example of the merit obtained by employing this framework.