Partial vs. General Equilibrium Analysis and Choice of Functional Form: Implications for Policy Modeling

In: Journal of policy modeling: JPMOD ; a social science forum of world issues, Band 7, Heft 2, S. 281-303

Abstract

In formulating empirically tractable, economy-wide models, researchers are often forced to employ "convenient" functional forms that embody restrictively maintained hypotheses. Alternatively, flexible functional forms may be utilized in a partial equilibrium setting. Estimation & incorporation of flexible functions into computable general equilibrium models is considerably more demanding of research resources. Assuming that shortcuts will continue to be necessary for researchers attempting to respond to current policy problems, these two alternatives are compared using a general equilibrium model of the NY state economy to evaluate the relative performances of flexible partial equilibrium models & their more restrictive, general equilibrium counterpart. In this particular application, the former approach is found to dominate. 4 Tables, 1 Appendix, 21 References. HA