NATURAL RESOURCE SUPPLY CONSTRAINTS AND REGIONAL ECONOMIC ANALYSIS: A COMPUTABLE GENERAL EQUILIBRIUM APPROACH

Fixed-price models, such as IO or SAM-based models, do provide internally consistent
representations of regional economic structure but under very restrictive assumptions (e.g., fixed-
proportion production functions, unconstrained factor and commodity supplies, and fixed or
price-inelastic demand for goods and services). Moreover, in contrast to the CGE models, fixed-
price models regard all factor supplies, both interregionally and intersectorally, as perfectly elastic
by holding all commodity and factor prices fixed. Constant multipliers result from the assumption
of fixed proportion, column-normalized expenditure coefficients. The magnitude of these
multipliers reflect the strength of backward linkages in the regional economy. The fixed-price
specification embodies traditional demand driven assumptions and procedures regarding regional
economic systems. Consequently, fixed price models, model resource supply shocks as
“equivalent” reductions in exogenous demand for the output of the directly impacted industrial
sectors. While fixed price models are ideally suited to estimating the impact of changes in final
demand, but are severely limited in their applicability to supply-side issues.

Despite the inherit limitations of fixed price models, some researchers have creatively used
fixed-price models to analyze the impacts of natural resource constraints, the reader is referred to
Petkovich and Ching (1978) (mining), and Waters, Holland, and Weber (1994) (timber).
Examples of CGE applications to resource policy issues can be found in Despotakis and Fisher
(1988) (petroleum) and Berck, Robinson, and Goldman (1991) (water).

Regional CGE Models

A regional CGE model consists of a system of equations representing the equilibrium
behavior of factor and commodity markets and other relevant economic institutions. The system
can simulate economic response to changes in a wide array of policy, management, and behavioral
variables. A key feature is the inclusion of relative prices which reflect the economic scarcity of

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