The Northeast Oregon CGE Model
Allocation of all resources and commodities in the Northeast Oregon CGE model is a
function of economic scarcity as reflected by the relative prices of all goods, services, and
productive factors. Thus, price variables assume a preeminent role in the model. Key
determinants of relative prices include: 1) factor supply and production constraints; 2) ability of
regional consumers to substitute between alternative sources of commodity supply (i.e., regional
industrial supply, regional non-industrial supply and imported supply); 3) ability of regional
producers to supply alternative markets (i.e., regional versus outside the region, or “export”); and
4) demand conditions affecting regional and export markets.
Figures 2 traces the linkages between components of the regional CGE model.5 At the
bottom of the figure, value is added to inputs of labor, proprietors’ services, and capital via
linearly homogeneous Cobb-Douglas production functions, and combined with intermediate
inputs to produce output for each sector (X). Behavioral assumptions ensure that producers
maximize economic returns by equating the marginal factor cost with the value of each factor’s
contribution to marginal product.
Each unit of X is either sold to local buyers (XXD) or exported outside the region (E). A
constant elasticity transformation function (CET) governs the ease with which regional producers
can switch between regional and export market destinations. Revenue maximization behavior by
producers determines the proportion of output supplied to satisfy regional demand versus export
markets. Export demand is assumed to be perfectly elastic (i.e., world commodity prices are
fixed), while regional demand is influenced by endogenous price and income effects.
5A list of variables, parameters, and equations, and detailed descriptions of the regional
CGE model is available on request.
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