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GTAP Resource #4234

"Costs of Regulation in Partial and General Equilibrium"
by Adkins, Liwayway, Richard Garbaccio and Mun Ho

Partial equilibrium models are often used for policy analysis, even in applications where academic observers suggest that general equilibrium models would be more appropriate. Economic theory generally provides only rough guidance for determining when it is worth the extra effort and expense to employ a general equilibrium model rather than a partial equilibrium one. Direct comparisons of analyses using both frameworks are rare.

In this paper we perform such direct comparisons with the intention of providing guidance to analysts doing applied welfare analysis. The distinction between partial and general equilibrium is important in the analysis of environmental and energy policies, which are often implemented sectorally but have broader economic consequences. The issue, however, is also applicable in other policy domains.

We start with a single-country, 4-sector, 2-factor static CGE model. We calibrate partial equilibrium sector supply and demand systems that exactly reproduce those in the general equilibrium model. We then simulate the imposition of a regulation in both the partial and general equilibrium frameworks and compare the impact on sectoral variables and assorted welfare measures.

In simulating the imposition of regulations, we focus our attention on how regulations may affect the production system, and thus costs, through their impacts on total factor productivity, individual factors, and energy and intermediate input usage. Using a simple CGE model allows us to illustratively trace out the channels through which interactions within the economy may amplify the direct sectoral impacts of a regulation. We perform simulations both with and without pre-existing distortions (such as factor taxes) that a large body of work has shown can exacerbate direct costs.

Finally, we extend the analysis to a more realistic setting using a multi-country, 29-sector CGE model. As we did with the 4-sector model, we calibrate partial equilibri...

Resource Details (Export Citation) GTAP Keywords
Category: 2013 Conference Paper
Status: Published
By/In: Presented at the 16th Annual Conference on Global Economic Analysis, Shanghai, China
Date: 2013
Created: Adkins, L. (4/15/2013)
Updated: Adkins, L. (3/12/2017)
Visits: 2,343
- Climate change policy
- North America

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