Spatial Price Equilibrium Model Research Articles

The border effects and choices of competitive strategies of the provincial natural gas markets in China

The provincial government competition is regarded as a key variable in China's market-oriented reform to explore whether natural gas market will be integrated from segmentation. A spatial price equilibrium model with two markets is advanced to theoretically explain the competitive policy tools of environmental regulation and pipelines investment will increase resource rent but decrease congestion rent, and lead to more segmentation and integration of gas market, respectively. However, it is difficult to quantify the price differences resulted from these two rents on gas trade network. Therefore, the price difference is selected as the dependent variable of the border effect model, and a model-based analytical framework is put forward to empirically study the mechanism of the border effects from provincial competition. Results indicate that: (i) Natural gas physical network builds a trade network for provincial competition, and government uses policy tools to redistribute these two rents to change the spatial allocation relationships of natural gas on the trade network. (ii) Market segmentation by these two rents generates the border effects which display heterogeneity on gas trade network after provincial competitions in different ways. (iii) Once the margins of the two rents are changed by a node in the node-centered niche gas market when gas trade network evolves from a small world to free-world, the government will self-adaptively migrate its competitive strategies to maximize its marginal revenue. Consequently, the migration helps the niche market and the whole market to be integrated from segmentation. Some suggestions are given for China's natural gas market integration.

A Multicommodity Spatial Price Equilibrium Model with Exchange Rates and Non-Tariff Measures for Agri-Food International Trade

A Multicommodity Spatial Price Equilibrium Model with Exchange Rates and Non-Tariff Measures for Agri-Food International Trade

Exchange rates and multicommodity international trade: insights from spatial price equilibrium modeling with policy instruments via variational inequalities.

In this paper, we construct a multicommodity international trade spatial price equilibrium model of special relevance to agriculture in which exchange rates are included along with policy instruments in the form of tariffs, subsidies as well as quotas. The model allows for multiple trade routes between country origin nodes and country destination nodes and these trade routes can include different modes of transportation and transport through distinct countries. We capture the impacts of exchange rates through the definition of effective path costs and identify the governing multicommodity international trade spatial price equilibrium conditions, which are then formulated as a variational inequality problem in product path flows. Existence results are established and a computational procedure presented. The illustrative numerical examples and a case study are inspired by the impacts of the war against Ukraine on agricultural trade flows and product prices. The modeling and algorithmic framework allows for the quantification of the impacts of exchange rates and various trade policies, as well as the addition or deletion of supply markets, demand markets and/or routes, on supply and demand market prices in local currencies, and on the volume of product trade flows with implications for food security.

A Multicommodity Spatial Price Equilibrium Model with Exchange Rates and Non-Tariff Measures for Agri-Food International Trade

A Multicommodity Spatial Price Equilibrium Model with Exchange Rates and Non-Tariff Measures for Agri-Food International Trade

Consumer learning of product quality with time delay: Insights from spatial price equilibrium models with differentiated products

In this paper, we present spatial price equilibrium network models, both static and adaptive, with differentiated products under perfect quality information for producers and consumers and under quality information asymmetry with consumer learning of product quality with a time delay. The adaptive model with information asymmetry is able to adapt to the uncertainty in consumer learning as well as in supply, demand, transportation cost, and product quality over time. In addition, we provide measures of consumer welfare under perfect quality information and under information asymmetry as well as the value of perfect quality information for consumers. The models are formulated and qualitatively analyzed using variational inequality theory. We establish theoretically and illustrate computationally that, under appropriate assumptions, the equilibrium solution, consisting of supply and demand markets prices, quality levels, and product flows, of the adaptive spatial price equilibrium model with information asymmetry converges to that of the corresponding static model with perfect quality information. The models are especially relevant to agricultural products where spatial price equilibrium models have found wide application. We also present several numerical examples with practical insights provided.

Analysis of the global wood‐chip trade's response to renewable energy policies using a spatial price equilibrium model

AbstractWood chip, mainly used to produce paper and other products traditionally, has also been used to produce biofuel. The global demand for wood chip is increasing as policies promote the use of biomass for renewable energy. The USA has been a major exporter of wood chip worldwide, but US exports of wood chip could decline if this resource is increasingly used for domestic electricity generation and cellulosic biofuel production. Meanwhile, European Union (EU) demand for wood chip is expected to increase rapidly in response to its renewable energy policy. In this paper, we build the first global trade model for wood chip using available wood chip trade data and analyze the combined effects of local renewable energy policies in these jurisdictions on the global market of wood chip. We find that the tropical regions of Latin America and Southeast Asia as well as the Former Soviet Union would increase their export of wood chip significantly in response to the policy scenarios. If forest governance in some of these countries is weak, US and EU renewable energy policy could inadvertently exacerbate deforestation in these regions, with an associated negative impact on carbon storage and other environmental services. © 2017 Society of Chemical Industry and John Wiley & Sons, Ltd

Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach

In this paper, a spatial price equilibrium model developed to shed new light on the economic impact of restrictive trade sanctions adopted in the Canada-U.S. softwood lumber dispute. Mixed complementarity programming is used to solve a 21-region, global trade model that is calibrated to 2011 observed bilateral trade flows using positive mathematical programming. In addition, the model employs a mechanism for analyzing the effects of the tariff rate quota used in the 2006 Softwood Lumber Agreement (SLA). It is estimated that the SLA created an annual deadweight loss of $28 million, paid by U.S. consumers. The quota constrained Alberta lumber producers while BC producers had excess quota. The lack of a proper mechanism for capturing quota rent, such as a tradable quota scheme or quota auction resulted in the survival of high-cost firms, perhaps to the detriment of lower-cost firms in Alberta. In the absence of SLA, it is estimated that Alberta would supply an additional 9% of Canadian softwood lumber to the U.S., eroding the supply share of all other regions while improving aggregate welfare.

A Dynamic Spatial Price Equilibrium Model of Integrated Urban Production-Transportation Operations Considering Freight Delivery Tours

This paper introduces a dynamic spatial price equilibrium model that estimates urban freight-related flows for integrated producer-carrier operations that compete in a market where a generic commodity is traded. The model is applicable to cases where suppliers compete in a market by producing a commodity that is delivered to customers by means of delivery tours. The model obtains the patterns of commodity flows, production levels, and delivery tours that maximize economic welfare. The model is then reinterpreted as a Nash equilibrium model, where a set of suppliers deploys strategies involving production and delivery decisions to maximize profits, that is then solved with a heuristic approach that decomposes the interrelated decisions into how much to produce, how best to deliver to customers, and how much to charge for the cargo. Once the suppliers make these decisions, a market-clearing mechanism determines the amount of supplies that the various consumer nodes purchase from the suppliers. At this stage, the suppliers readjust their market strategies in anticipation of the next time period. The process ends when equilibrium is reached. Three different dynamics of the suppliers’ decisions on production levels are tested to gain insight into how efficiently each helps to reach the equilibrium solutions. By developing a model that explicitly considers delivery tours, the paper makes a significant contribution to the fields of spatial price equilibrium and freight demand modeling.

Climate Change and Food Security: Do Spatial Spillovers Matter?

This article analyzes the role of spatial spillovers in the relationship between climate change and food security in developing countries over the period of 1971-2010. Using a Samuelson’s spatial price equilibrium model (theoretically) and Spatial Durbin Model (empirically), results show a strategic substitutability between the levels of food availability in the countries suggesting that an increase of food availability in a given country decreases the food availability of neighboring countries. Second climate change (water balance variability, droughts, floods and extreme temperatures) reduces food availability both in the affected countries and its main food trading partners. Third, food demand factors in a country may have the opposite (asymmetric) effect on its major trading partners. Fourth, supply factors have symmetric impact on food availability.

Irreversibility and Sustainability: Attempts to Save the Florida Everglades

AbstractThe Everglades is a subtropical wetland in Florida encompassing a watershed area over 18,000 square miles. We provide a spatial price equilibrium model in order to determine the benefits and costs of several proposed buyout strategies. Florida Governor Charlie Christ originally proposed the acquisition of 187,000 acres of land from the U.S. Sugar Corporation (U.S. Sugar) in 2008, in an effort to restore the Florida Everglades. However, in 2010, the final litigation only covered 26,800 acres. Our analysis includes the cost to clean up the Everglades and shows that the benefits were less than the costs within an ex ante vs. ex post framework. Importantly, this research develops and applies the concept of an Environmental Equivalent, which is the dollar amount of environmental benefits needed from the Everglades restoration or water quality projects to generate a benefit-cost ratio greater than one.

Spatial price equilibrium with information asymmetry in quality and minimum quality standards

A spatial price equilibrium model with information asymmetry in quality is developed in both static and dynamic versions. Producers at the supply markets are aware of the quality of their products, whereas consumers, located at the demand markets, are aware only of the average quality of the products that are shipped to their demand markets. Minimum quality standards are also captured in order to assess the impacts of such policy interventions. We establish qualitative results, in the form of existence, uniqueness, and stability analysis. An algorithm is proposed, along with a convergence proof. It is then utilized to compute solutions to a spectrum of spatial price equilibrium numerical examples in order to explore the impacts of information asymmetry under different scenarios. The numerical examples, which are of quite general functional forms, reveal that, as the number of supply markets increases, the “anonymizing” effect leads to a decrease in the average quality. On the other hand, as the number of demand markets increases, the pressure to improve quality increases, and the average quality increases. Finally, we demonstrate that, after the imposition of minimum quality standards, the average quality at the demand markets increases and the prices also increase.

Spatial Price Equilibrium with Information Asymmetry in Quality

In this paper, a spatial price equilibrium model with information asymmetry in quality is developed. Producers at the supply markets are aware of the quality of their products, whereas consumers, located at the demand markets, are aware only of the average quality of the products that are shipped to their demand markets. We derive the governing equilibrium conditions, along with the variational inequality formulation. We then extend the model to include policy interventions in the form of minimum quality standards and provide an integrated variational inequality formulation of both models. We introduce a dynamic adjustment process for the evolution of the product shipments and quality levels over time and formulate it as a projected dynamical system. We establish qualitative results, in the form of existence, uniqueness, and stability analysis. An algorithm is proposed, along with a convergence proof. The algorithm tracks the evolution of the product shipment and quality level pattern until an equilibrium is achieved and, at each iteration, yields closed form expressions for the computation of the product shipments and quality levels. It is then utilized to compute solutions to a spectrum of spatial price equilibrium numerical examples in order to explore the impacts of information asymmetry under different scenarios.This work adds to the growing research on spatial competition and product quality but is the first to incorporate information asymmetry of this specific form in both equilibrium and dynamic model versions.

Accounting for Externalities in Benefit-Cost Measures: An Analysis of a Land Buyout and Associated Projects to Save the Everglades

As part of efforts to restore the Everglades, in 2008, Governor Crist of Florida proposed the acquisition of 187,000 acres of land from the U.S. Sugar Corporation (U.S. Sugar) for this purpose, but the final purchase in August 2010 totaled only 26,800 acres. This article presents the history behind the alternatives, including the buyout of U.S. Sugar land, to improve Florida's water quality and the health of the Everglades. To determine the benefits and costs of several of the U.S. Sugar land buyout proposals, a spatial price equilibrium model of the U.S. sugar market is developed. Within this framework, all the benefit-cost ratios calculated show that the benefits are less than the costs. Our analysis uses the concept of an Environmental Equivalent, which is the dollar amount of environmental benefits needed from the Everglades restoration or water quality projects to generate benefits that are as great as or greater than its costs. Also, we consider, within the context of ex ante vs. ex post benefit-cost analysis, the developments to clean up the Everglades since the U.S. Sugar land purchase.

Sweet and Sour Changes in Trade Regimes

AbstractSugar is an important export for a number of developing countries, especially in the African, Caribbean and Pacific regions. In many of these countries, preferential access to the EU market has been a key factor to develop their sugar sectors. The recent and proposed changes to the international sugar trade regimes, particularly in the EU, are threatening this preferential access. We study the possible implications of such changes on ACP countries’ sugar production and exports by using a spatial price equilibrium model specifically developed for the sugar market. The results suggest that the effects of these changes are likely to vary according to the prevailing level of world sugar market price and according to whether ACP countries are current exporters to the EU.

Self-Sufficiency Versus Free Trade: The Case of Rice in Iran

The dilemma of free trade and self-sufficiency for the case of rice in Iran justifies continuous governmental intervention in this market. Among all policy instruments, import tariffs have been extensively used to achieve self-sufficiency; however, the results of this policy are quite controversial and remain as a main question for researchers and policymakers. Hence, this article examines the economic impacts of increasing import tariff policy applying a multimarket spatial price equilibrium model. The results suggest that pursuing the goal of self- sufficiency by restricting rice import would be detrimental. Social welfare as well as real and per capita income are adversely affected by increasing import tariffs both in nationwide and regional scale except for 1 region, which is characterized as the largest net exporter region in Iran. Also results show that adopting free trade policies and improving rice yield may be the well-advised strategy in the case of rice in Iran.

Modelling the effects of an abolition of the EU sugar quota on internal prices, production and imports

We apply a spatial price equilibrium model of the world sugar market to simulate an abolition of the European Union (EU) quota system in 2015/16. To overcome the normative nature of the approach, we calibrate the model by attaching a non-linear cost term to each trade flow. This is in some regards similar to positive mathematical programming. We suggest an economic interpretation and an econometric specification of the cost term. EU sugar production is simulated to increase from 13.3 to 15.5 million tons in case of quota abolition by 2019/20. Ten member states increase production, nine reduce it. Preferential imports are significantly reduced. Simulated effects are found to be more pronounced the higher the world market price.

Stochastic Newton-like methods for computing equilibria in general equilibrium models

Calculating an equilibrium point in general equilibrium models in many cases reduces to solving a nonlinear system of equations. Taking model parameter values as random variables with a known distribution increases the level of information provided by the model but makes computation of equilibrium points even more challenging. We propose a computationally efficient procedure based on application of the fixed Newton method for a sequence of equilibrium problems generated by simulation of parameters values. The convergence conditions of the method are derived. The numerical results presented are obtained using the neoclassic exchange model and the spatial price equilibrium model. The results show a clear difference in the quality of information obtained by solving a sequence of problems if compared with the single equilibrium problem. At the same time the proposed numerical procedure is affordable.

Modelling preferential sugar imports of the EU: a spatial price equilibrium analysis

A spatial price equilibrium model with a large coverage of countries, policies and regional trade arrangements is applied to simulate preferential sugar imports of the European Union (EU) in 2015/16 under different assumptions with respect to the expansion of the sugar sectors of various least developed countries in order to benefit from unlimited EU market access. These are analysed under three different policy settings: a continuation of current policies, except for export refunds which are phased out by 2013, a continuation of current policies including export refunds and finally a World Trade Organisation agreement. Preferential imports are estimated to clearly exceed current estimates by the European Commission. In all scenarios, however, they are not found to threaten the reference price of the new Common Market Organisation.

A new estimator for trade costs and its small sample properties

This paper discusses the estimation of parameters of a traditional transportation model, as it is typically present in so-called Takayama–Judge type spatial price equilibrium models. In contrast to previously used estimation methods, observations of regional prices as well as of trade costs are used in a direct estimation of the first order conditions. The proposed method uses bi-level programming techniques to minimize a weighted least squares criterion under the restriction that the estimated parameters satisfy the Kuhn–Tucker conditions for an optimal solution of the transport model. A penalty function and a smooth reformulation are used to iteratively approximate the complementary slackness conditions. Monte-Carlo simulations are used to trace out some properties of the estimator and compare it with a traditional calibration method. The analysis shows that the proposed technique estimates prices as well as trade costs more precisely than the traditional calibration method. It is suggested to apply the same method to a range of linear and quadratic models.

Generalized Wardrop Principle and Its Application in Regional Transportation

Regional transportation can be regarded as a complex system consisting of many subsystems. If it is assumed that the decisions of others are known, one of the subsystems, such as a manufacturer, will make decisions from the viewpoint of individual optimal. But among these subsystems, there are noncooperative interactions. The first Wardrop principle can be used to explain the interplay between the subsystems and the second Wardrop principle to explain the internal decision making of one subsystem. To capture the feature of hierarchical behavior, classical Wardrop principles need to be generalized. The new behavior principle is named the generalized Wardrop principle. With the substitution of actual path sets for the simple links in a spatial price equilibrium network and constructing the generalized transportation cost functions, the regional transportation network equilibrium model is formulated. The new model combines the spatial price equilibrium model with the network optimization model. It can be explained by the generalized Wardrop principle and reflects the multicommodity, multimodal characteristics of regional transportation. The modified projection algorithm is used to solve the model. One numerical example is given to show the efficiency of the algorithm.