Economic modeling approaches: optimization versus equilibrium

Olga Kiuila and Thomas F. Rutherford (rutherford@aae.wisc.edu)
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Thomas F. Rutherford: ETH Zurich, Centre for Energy Policy and Economics

No 2014-04, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The paper discusses three general classes of nonlinear programming models. Our objective is to show how to represent optimization problem, such as nonlinear programs, in a compact format using extended mathematical programming. This is a useful tool, especially in cases when complementarity representation, such as mixed complementarity problems, could be difficult to apply. We reflect on the special features of the abstract neoclassical growth model with infinite horizon and illustrate four distinct approaches to computing equilibrium transition paths. The relationship between optimization and equilibrium modeling is explored. We conclude with a test of a new model representation (extended mathematical programming) using two common general equilibrium studies in the literature: Ramsey and Negishi. The new framework allows to define complementarity problems for a model formulated as an optimization problem, thus the resulting model becomes in fact a complementarity problem.

Keywords: nonlinear programming; complementarity programming; extended mathematical programming; computable general equilibrium modeling; infinite horizon (search for similar items in EconPapers)
JEL-codes: C02 C60 C61 C68 D58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014
New Economics Papers: this item is included in nep-dge and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP121.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2014-04

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