Computing equilibria for markets with constant returns production technologies

Yang Zhan () and Chuangyin Dang ()
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Yang Zhan: School of Management and Engineering, Nanjing University
Chuangyin Dang: City University of Hong Kong

Annals of Operations Research, 2021, vol. 301, issue 1, No 16, 269-284

Abstract: Abstract This paper is concerned with the computation of equilibrium for an exchange economy with constant returns production technologies. We convert such an economy into a pure exchange economy by allocating the production to each consumer’s endowment evenly. In this way, the market clearing condition of the original economy is reformulated as that of a pure exchange economy, together with an additional complementarity condition to ensure the feasibility of production plans. A homotopy method is proposed to solve these two problems simultaneously. With this approach, the economic equilibrium model with constant returns production can be handled in a similar way to the pure exchange economy. A path-following algorithm is then developed for computing equilibria in these economies.

Keywords: Economic equilibrium; Constant returns production; Differentiable homotopy; Path-following algorithm (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10479-020-03733-2

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