Computing Market Equilibria with Price Regulations Using Mathematical Programming

Abstract

One approach to modeling and solving for economic equilibria relies on mathematical programming. These models solve for competitive equilibria. However, policy analysis often requires measuring the impacts of government price regulations that differ from the competitive equilibrium. In this paper we provide a unified framework for computing market equilibrium in mathematical programming models in the presence of government price regulations. The iterative procedure that we use is essentially a Gauss–Seidel algorithmic strategy. The paper concludes by showing how to represent tax/rebate programs, average-cost pricing, and price ceilings.

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