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- Title
Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition.
- Authors
Mercenier, Jean
- Abstract
Since the publication of Harris (1984), applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. Their attractiveness comes from their offering a natural framework for testing the empirical relevance of numerous propositions from the industrial organization and new trade theoretical literature. Their role in the recent debates on the North American Free Trade Agreement demonstrates their potential importance in policy analysis. This paper warns model builders and users that considerable caution is however needed in interpreting the results and in deriving strong policy conclusion from these models: it is shown that in this generation of applied general equilibrium models, nonuniqueness of equilibria is not a theoretical curiosum, but a potentially serious problem. Disregarding this may lead to dramatically wrong policy appraisals.
- Subjects
NORTH America; ECONOMIC equilibrium; COMPETITION; ECONOMIES of scale; INTERNATIONAL trade; ECONOMIC policy; IMPERFECT competition; FREE trade
- Publication
Economic Theory, 1995, Vol 6, Issue 1, p161
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/BF01213945