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Factor proportionality in multiple households closed CGE models: theory and illustrations

Author

Listed:
  • Yves Balasko

    (University of York)

  • Octavio Tourinho

    (UERJ)

Abstract
The factor contents of different consumers’ consumption bundles computed from a country’s CGE model with multiple households are seen to be proportional or almost proportional in the case of four different countries, namely USA, Brazil, Spain and Ivory Coast. These countries have been chosen because of the existence for these countries of CGE models with multiple households (by opposition to a representative consumer) and good quality data. This study has been limited to these four countries because we thought that the implications for CGE modeling of our findings should not delay any further their publication even though further studies are obviously needed. Taken as a law, we show that proportionality of factor contents at equilibrium for all endowment vectors and fixed preferences implies that households’ implicit preferences for factor contents are identical and homothetic. Another consequence is that factor and goods’ equilibrium prices are unique and depend only on total factor resources, not on the distribution of these factors between households. Factor proportionality may therefore be at the root of the puzzling rigidity and uniqueness of equilibrium prices of goods and factors observed in CGE models with multiple households.

Suggested Citation

  • Yves Balasko & Octavio Tourinho, 2014. "Factor proportionality in multiple households closed CGE models: theory and illustrations," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 119-136, October.
    • Handle: RePEc:spr:etbull:v:2:y:2014:i:2:d:10.1007_s40505-014-0032-x
    DOI: 10.1007/s40505-014-0032-x
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    References listed on IDEAS

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    Cited by:

    1. Yves Balasko & Octavio Tourinho, 2017. "Further evidence on the law of factor proportionality in multiple households closed CGE models," Applied Economics Letters, Taylor & Francis Journals, vol. 24(12), pages 831-836, July.
    2. Fragkos, Panagiotis & Fragkiadakis, Kostas & Sovacool, Benjamin & Paroussos, Leonidas & Vrontisi, Zoi & Charalampidis, Ioannis, 2021. "Equity implications of climate policy: Assessing the social and distributional impacts of emission reduction targets in the European Union," Energy, Elsevier, vol. 237(C).
    3. Renuka Mahadevan & Hidayat Amir & Anda Nugroho, 2017. "Regional impacts of tourism-led growth on poverty and income inequality," Tourism Economics, , vol. 23(3), pages 614-631, May.

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    More about this item

    Keywords

    Factor proportionality; Price rigidity; Equilibrium uniqueness CGE models;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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