ABSTRACT
In computable general equilibrium (CGE) models, it is typically assumed that agricultural resources are smoothly substitutable in neoclassical production or cost functions, with flexible wages, rents and prices generating market equilibrium in a setting with full resource employment. Such models are familiar to economists because the Kuhn-Tucker optimality conditions define a mixed-complementarity (MC) problem. An MC model consists of a set of simultaneous equations that are a mix of strict equalities and inequalities, with each inequality linked to a bounded variable in a complementary-slackness condition. In order to demonstrate the significance of the MC approach to CGE modelling, we briefly present results from experiments using a dynamic CGE-MC model of Egypt with a detailed treatment of agriculture. This chapter presents a stylized standard neoclassical CGE model, which is then extended to a CGE-MC format to include Leontief technology, endogenous determination of the market regime for agricultural factors and inequality constraints on agricultural factor use.
