Book contents
- Frontmatter
- Dedication
- Contents
- List of Text Boxes
- Acknowledgments
- About This Book
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Regulations in a CGE Model
- 10 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix A Social Accounting Matrix for the United States, 2007 $U.S. Billions
- Appendix B Price and Quantity Variables and Definitions in a Standard CGE Model
- Glossary
- Practice and Review Answer Key 385
- Model Exercise Answer Key 391
- References
- Author Index
- Subject Index
9 - Regulations in a CGE Model
Published online by Cambridge University Press: 02 February 2017
- Frontmatter
- Dedication
- Contents
- List of Text Boxes
- Acknowledgments
- About This Book
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Regulations in a CGE Model
- 10 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix A Social Accounting Matrix for the United States, 2007 $U.S. Billions
- Appendix B Price and Quantity Variables and Definitions in a Standard CGE Model
- Glossary
- Practice and Review Answer Key 385
- Model Exercise Answer Key 391
- References
- Author Index
- Subject Index
Summary
This chapter examines the treatment of regulations in a computable general equilibrium (CGE) model. Regulations are “command and control” policies that mandate changes in producer or consumer behavior. We study two types of regulations: non-tariff measures that can create barriers to international trade and regulations designed to reduce negative externalities in production. We demonstrate the mechanisms used to introduce a technical non-tariff measure into a CGE model. We describe process-based and outcome-based regulations of externalities and explain their direct and indirect economic impacts. Simple partial equilibrium diagrams illustrate the theoretical effects of the regulations on economic activity and economic efficiency. The results of highly stylized regulatory policy experiments using a CGE model support the theoretical predictions and illustrate modeling methodologies.
Types of Regulations
A vehicle tailpipe emissions standard was first enacted in the United States in 1970 and it has become more stringent over time. The intent of the regulation is to reduce harmful auto emissions, which contribute to today's higher incidence of asthma and other pulmonary health problems, and may be a factor in long-term global warming. According to an analysis of the newest emission standard, a reduction in emissions generates broad gains in the U.S. economy as a whole, not only by reducing health costs and improving the environment but also by increasing employment in industries that supply auto producers with low-emission inputs (U.S. EPA, 2012). Because regulations imposed on a single industry can have important economy-wide impacts, and may have spillover effects on other countries as well, CGE models have become a standard tool for their analysis.
Regulations are command-and-control policies. Unlike taxes, which create price incentives that influence economic choices, regulations are used by the government to directly mandate certain behavior. The mandates are usually negatively enforced with fines, imprisonment, or other undesirable outcomes. Regulations, like taxes, therefore have an impact on resource allocations by producers and consumers. But because regulations do not operate through price mechanisms, as taxes do, they are more challenging to represent in a CGE model, which is fundamentally based on observable market prices and quantities.
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- Information
- Introduction to Computable General Equilibrium Models , pp. 234 - 256Publisher: Cambridge University PressPrint publication year: 2017