List of Acronyms

AIDS 
Almost Ideal Demand System 
BEA 
Bureau of Economic Analysis 
BLS 
Bureau of Labor Statistics 
CD 
CobbDouglas 
CES 
Constant Elasticity of
Substitution 
CET 
Constant Elasticity of
Transformation 
CGE 
Computable General
Equilibrium 
CRS 
Constant Returns to Scale 
GAMS 
General Algebraic Modeling
System 
GRP 
Gross Regional Product 
GSP 
Gross State Product 
IMPLAN 
IMpact analysis for PLANning 
IO 
Inputoutput 
LES 
Linear Expenditure System 
NIPA 
National Income and Product
Accounts 
REIS 
Regional Economic Information
System 
SAM 
Social Accounting Matrix 
SDSAM 
Supplydetermined SAM 
VA 
Valueadded 
Glossary of
Terms
Armington assumption: Allows
domestically produced and foreign produced goods to be imperfect substitutes in
use, making the consumption of quantities of domestically produced and imported
variants of the commodity to enter the representative consumer’s utility
function as distinct elements. In empirical CGE formulations, this assumption
helps to overcome the "specialization" problem (de Melo and Tarr).
Calibration: The process by which
values of the normalizing (or free) parameters are determined so as to
replicate the observed flow values incorporated in the social accounting matrix
(SAM), assuming all the equations describing the equilibrium in the system
(model) are met in the benchmark period. This process is augmented by
literature search (and on occasion econometric estimation) for key model
parameters, whose values are required before the calibration can proceed. In
practice, due to the wide spread use of CES functions in applied models, "key"
parameters are more or less synonymous with elasticities (Mansur and
Whalley).
CobbDouglas production function: A
production function in which the elasticity of factor substitution is constant
and equal to unity. In general, this function has the form
, where A is an
efficiency parameter, x and y are the inputs and
a and b are their
coefficients (which, for this function, are equal to elasticities).
Compensating variation: An estimate in money terms
of the amount households would require as compensation in order to remain as
well off after an exogenous shock as they were before the shock. This welfare
measure is based on new equilibrium prices.
Computable General Equilibrium (CGE)
model: An integrated system of equations (or general equilibrium model),
derived from economic theory of the behavior of all economic agents, whose
simultaneous solution uses a numerical database to determine values of the
endogenous variables. By simulating the effects of policy, structural or market
changes, a welldefined CGE model is a useful tool for economic impact
analysis.
Duality: Duality in neoclassical
microeconomics refers to the existence, under appropriate regularity
conditions, of indirect (or dual) functions which embody the same essential
information on preferences or technology as the more familiar direct (or
primal) functions such as production and utility functions. Dual functions
contain information about both optimal behavior and structure of the underlying
technology or preferences, whereas the primal functions describe only the
latter. Many relationships that are difficult to understand when looked at
directly become simple, or even trivial, when looked at using the tools of
duality (Varian).
Equivalent variation: Defined the
same as compensating variation except that this welfare measure is based on
initial equilibrium prices rather than new equilibrium prices.
ES202: A federalstate program
summarizing employment, wage and contribution data from employers subject to
state unemployment laws, as well as workers covered by unemployment
compensation for federal employees (UCFE). The ES202 program is also called
Covered Employment and Payrolls (CEP) program and involves the Bureau of Labor
Statistics (BLS) of the U.S. Department of Labor and the State Employment
Security Agencies (SESAs).
Externality: Side effects of an action that
influence the wellbeing of nonconsenting parties. The nonconsenting parties
may be either helped (by external benefits) or harmed (by external costs). For
example, the effect of an industry’s output on the total costs of each
firm and/or other participants in the economy.
Frisch parameter: Marginal utility
of income with respect to income (de Melo and Tarr).
General equilibrium model: A model
of an economy that portrays the operation of many markets simultaneously.
Hicksian demands: Demand functions
that are derived from cost minimization, commonly referred to as the dual
problem in demand analysis. These functions tell us how quantity is affected by
prices with utility held constant. Primal to these demands are the
Marshallian demands, which are derived from maximizing utility holding
income constant.
Imperfect competition: Any market
structure in which firms do not exhibit the characteristics of perfect
competition.
Lagrangian: A mathematical
technique used to find values of variables that minimize or maximize an
objective function while satisfying equality constraints.
Law of one price: The assumption
that the price of a commodity differs between any two levels of the marketing
channel by no more than the transfer costs. For example, by this law, the price
is expected to differ between any two locations by no more than transportation
costs. Implicit in this law is the assumption of extreme specialization and
perfect substitution between domestic and foreign commodities.
Leontief production function: (see
Leontief technology below)
Leontief technology: A production
technology in which inputs always enter in fixed proportions to produce a unit
of output (zero elasticity of factor substitution). Thus, the input that poses
a binding constraint determines the amount of output to be produced.
Mathematically, Leontief technology is presented as:
, where x and y
are the inputs and a and b are their fixed coefficients.
Market distortion: Market failure
that is caused by deliberate policy intervention, such as imposition of a tax
or a subsidy. [see definition of market failure below]
Market failure: Failure of the
market system to attain hypothetically ideal allocative efficiency. This means
that potential gain exists that (for some reason) has not been captured.
Missing markets: Absence or
incompleteness of markets for some goods and services, which renders prices for
such commodities nonexistent. For example, an agent (e.g. firm) may care about
an externality (e.g. pollution) generated by another agent but have no way to
influence it.
Monopoly: A market structure
characterized by a single seller of a welldefined commodity for which there
are no good substitutes and by high barriers to the entry of other firms into
the market for that commodity.
Monotonically decreasing: A
function g(× ) is said to be
monotonically decreasing if, for any x > y, g(x)
< g(y).
Monotonically increasing: A
function g(× ) is said to be
monotonically increasing if, for any x > y, g(x)
> g(y).
Nonconvexity: Nonconvexity is
explained by the incapacity of the additivity and divisibility
hypotheses on production to hold. The additivity assumption says that if two
production plans are technologically feasible, a new production plan consisting
of the sum of these two will also be possible. Divisibility, on the other hand,
states that if a production plan is feasible, then any production plan
consisting of a reduction in scale will also be feasible. Failure of the
divisibility assumption is argued as the main source of nonconvexities
in production.
Oligopoly: A market structure in
which there are only a few sellers of a commodity (competition among the
few).
Partial equilibrium model: A model
of a single market that ignores repercussions in other markets.
Perfect competition: A widely used
economic model (market structure), where it is assumed that there is a large
number of buyers and sellers for any commodity and each agent is a price
taker.
Returns to scale: The term returns
to scale refers to the response of output when proportional increases in all
inputs are carried out (scale of operation). If output increases by a smaller
proportion, then the technology is said to exhibit decreasing returns to scale
(diseconomies), but if it increases by a greater proportion than the inputs it
exhibits increasing returns to scale (economies). If output increases by the
same proportion as the inputs, we refer to this technology as constant returns
to scale. Mathematically, if ,
k>1 implies increasing returns, k<1 decreasing returns, and
k=1 constant returns when X is a vector of inputs,
is the production technology,
and m is a scalar.
Specialization problem: The Law of One Price
implies extreme specialization in an economy where goods are produced under CRS
and the number of commodities exceeds the number of factors of production.
Back to Contents
