Factor proportionality in multiple households closed CGE models: theory and illustrations

Abstract

The factor contents of different consumers' consumption bundles computed from a country's CGE model with multiple households are seen to be proportional or almost proportional in the case of four different countries, namely USA, Brazil, Spain and Ivory Coast. These countries have been chosen because of the existence for these countries of CGE models with multiple households (by opposition to a representative consumer) and good quality data. This study has been limited to these four countries because we thought that the implications for CGE modeling of our findings should not delay any further their publication even though further studies are obviously needed. Taken as a law, we show that proportionality of factor contents at equilibrium for all endowment vectors and fixed preferences implies that households' implicit preferences for factor contents are identical and homothetic. Another consequence is that factor and goods' equilibrium prices are unique and depend only on total factor resources, not on the distribution of these factors between households. Factor proportionality may therefore be at the root of the puzzling rigidity and uniqueness of equilibrium prices of goods and factors observed in CGE models with multiple households. Electronic supplementary material The online version of this article

Regional impacts of tourism-led growth on poverty and income inequality

“…In order to adequately examine distributional impacts on poverty and income inequality, sufficient data and information on households' distributional income need to be incorporated into the model's database. Thus, a CGE model that is based only on an I-O the strong methodological advantage of internal model consistency is used (see Balasko and Tourinho, 2014;Warr and Yusuf 2014) Drawing from Warr and Yusuf (2014), households are categorized into 100 subcategories, arranged by expenditure per capita, and poverty incidence measured by the headcount ratio is computed for each subcategory using the formula:…”