Symmetric Positive Equilibrium Problem: A Framework for Rationalizing Economic Behavior with Limited Information: Comment

Abstract

In a recent contribution to this journal, Paris suggests a framework which extends positive mathematical programming (PMP)—a widely used calibration methodology for agricultural supply models—to a symmetric positive equilibrium problem (SPEP). He stresses three main contributions: (1) The PMP methodology is modified to incorporate more than one observation on production programs; (2) A solution to the “self-selection problem” with respect to the choice of crops produced by each farm is provided; (3) “Limiting inputs” are no longer considered fixed quantities as in PMP. We address several conceptual concerns with respect to the SPEP methodology and the presented application. We consider these to be substantial enough to question Paris’ claim to present “ ... a general framework of analysis that is capable of reproducing economic behavior in a consistent way ... ” (p. 1049). Our discussion is structured along Paris’ presentation: The next three sections represent the core of the comment and deal with the methodology itself. They refer to the three phases of SPEP: (i) recovery of unknown variable marginal costs and shadow prices of limited resources, (ii) use of these results to specify data constraints and parameter supports for generalized maximum entropy (GME) estimation of a cost function, and (iii) definition of a simulation model. Finally, concluding remarks are made regarding the application of SPEP to an analysis of the EU Common Agricultural Policy (CAP) based on Italian farm data. Throughout the comment we use the same