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GTAP Resource #4902

"Willingness to Pay in CGE Models"
by Walmsley, Terrie and Peter Minor

The aim of this paper is to provide a new methodological approach for estimating the economic impacts of reducing customs delays within a computable general equilibrium (CGE) model. The new approach, which we will reference as the willingness-to-pay method, explicitly models the reduction in customs delays from the demand side as an increase in a consumer’s willingness to pay for faster delivery. To illustrate our new approach, we estimate the impact of the WTO Trade Facilitation Agreement (TFA). Econometric estimates of willingness to pay for the reduction in customs delays are used to obtain ad valorem equivalents of the TFA. These are then applied as demand side shocks to a global supply chain model and the results compared to those obtained using the existing methodology based on Samuelson’s iceberg approach (Samuelson, 1954). The implementation of the TFA using the iceberg approach, lowers the cost of trade, raising the quantity of imports consumed relative to the quantity sent or exported through an import-augmenting technological change, thereby raising real GDP and welfare. Alternatively, under the new approach the TFA has a smaller impact on real GDP; although prices, trade volumes and welfare are all higher when the TFA is explicitly modeled as a demand or preference shift in consumers’ willingness to pay, rather than as a reduction in an iceberg cost.

Resource Details (Export Citation) GTAP Keywords
Category: 2016 Conference Paper
Status: Published
By/In: Presented at the 19th Annual Conference on Global Economic Analysis, Washington DC, USA; ImpactECON Working paper,
Date: 2016
Version: #04-002
Created: Walmsley, T. (4/8/2016)
Updated: Walmsley, T. (4/8/2016)
Visits: 1,709
- Multilateral trade negotiations
- Non-Tariff barriers

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