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F R E I G H T T R A N S P O R T M O D E L I N G
( C I V L 7 9 0 9 - 8 9 0 9 )
D E P A R T M E N T O F C I V I L E N G I N E E R I N G
U N I V E R S I T Y
U N I V E R S I T Y O F M E M P H I S
1
Computable General Equilibrium
Models- Part II
09/05/2014
Material2
Materials used in today’s lecture are from
Burfisher M.E., Introduction to Computable General Equilibrium Models, Cambridge University Press, 2011
Hosoe N.M. Gasawa K., Hashimoto H., Textbook of Computable General Equilibrium Modeling, Palgrave
Macmillan, 2010
Topics3
Social Accounting Matrix (SAM)
A Simple CGE model
Spatial CGE Models
Social Accounting Matrix (SAM)4
BRD: Bread, MLK: Milk, CAP: Capital, LAB: Labor
SAM General5
Database of CGE organized into a table
Report the value of transactions in a circular flow
National Income & Spending
Time: Usually over a year
Agents:
Industries
Factors of production (e.g. labor & capital)
Household consumers
Government
Rest of the world
Key Features Of SAM6
Square matrix (each agent has a column and a row)
Column = Spending
Row = Income
Each cell is simultaneously an expenditure by an agent and a source of income to an agent
For each agent total expenditure=total income (i.e. column sum = row sum)
Accounts in SAM7
Production Activities-18
Domestic industry engaged in production of goods
Column accounts for all expenditures on inputs
Column sum= Gross Output=Value Added+Cost of Inputs
Value added
Production Activities-29
Row records sales of output
Assumption: All production is sold to a commodity account
We will see later on why
Production Activity and Commodities10
• 2 and 24 billion(import and domestic) of AGR
products are purchased by AGR
• 160 and 229 (import and domestic) of AGR products
are purchased by MFG
• AGR Sold in total 434 billion
Factors of Production11
Land, Labor, Capital
Subcategories: Skilled vs. Non-skilled labor
ROWSColumns
Regional vs. Private Households12
Regional: found in some CGE models and SAMs (equivalent to GDP)
Row: Sources of aggregate national income from factor incomes and taxes
Column: Allocation of aggregate domestic spending (by household and government) and national savings
Private: Income and spending of individuals in an economy
Receives after income tax income from the regional households column account
Difference: Government and Savings
Regional Household Production13
RH earns 31+5,397+1,632=7,060 billion from factors
RH also earns from indirect taxes (25+2+1+47)
RH also earns from indirect taxes (2+178+45-3+1021+90+469+1693)
TOTAL
10,628
Regional and Household Consumption
TOTAL
10,628
Building SAM (from I-O)15
Sum-Of-Rows=Sum-Of-Columns
Building SAM (from I-O)16
20+30,15+25
Building SAM (from I-O)17
5+4, 1+2
50 40
50 40
90
Building SAM (from I-O)18
9 3
50 40
24-12
Total Exports
Total Imports
Trade deficit
50 40 9 3
90
12
12
Building SAM (from I-O)19
9 3
50 40
12
So far we used Sum-Of-Rows=Sum-Of-Columns
50 40 9 3
We need one of the three cell values (say direct tax revenues from national account tables)
90
12
35
31
90
35
Final SAM20
A Simple CGE Model21
Assumptions
Static: No investment and savings
Close Economy: No international trade
Two goods: Break (index i) and Mil (index j)
Two factors: Capital (index h) and labor (index k)
One representative household consuming goods
Two representative firms producing bread and milk (one commodity per firm)
Find demand, supply and prices
Model Structure22
Functions of factor inputs
Utility function from consumption of bread
(BRD) and milk (MLK)
Production
Function
of BRD
Household Behavior23
Total Expenditure = Total Income
Household Behavior Solution24
φ is the Lagrange multiplier
First-order optimality conditions
Increase in price – decrease
in consumption
Increase in salary – increase
in consumption
Firm Behavior25
Firms’ j net profit maximization function
First term: Profit
Second Term: Factor cost
Production function (not really a constraint)
Firm Behavior Solution26
First-order optimality conditions
ωj is the Lagrange multiplier
Same rational as with
households (price change of
factors or product)
Model of System27
Market Clearing Conditions
1. Demand of good i=Supply of good i
2. Total demand of factor i satisfied
3. Firm’s supply price equal to demand price
Spatial Components: SCGE
Tavasszy, Thissen, Ooosterhaven (2011) Challenges in the application of SCGE models for transport appraisal. Research in Transport
Economics, 31, pp: 12-18
28
Usage: Analysis of indirect effects of transport projects to the economy
Linkage: Transport sector
Static Equilibrium Models of Interregional Trade and Location
Prices include transport costs
Still young models lacking empirical foundation (theoretical is sound) – see Tavasszy et al. (2011)
F R E I G H T T R A N S P O R T M O D E L I N G
( C I V L 7 9 0 9 - 8 9 0 9 )
D E P A R T M E N T O F C I V I L E N G I N E E R I N G
U N I V E R S I T Y
U N I V E R S I T Y O F M E M P H I S
29
Computable General Equilibrium
Models- Part II
09/05/2014
30
