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Torbjörn Jansson*. CAPRI Common Agricultural Policy Regional Impact. Connecting supply and demand. CAPRI Training Session in Warzaw, June 26-30, 2006. *Corresponding author +49-228-732323 www.agp.uni-bonn.de. Department for Economic and Agricultural Policy Bonn University Nussallee 21
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Torbjörn Jansson* CAPRICommon Agricultural Policy Regional Impact Connecting supply and demand CAPRI Training Session in Warzaw, June 26-30, 2006 *Corresponding author +49-228-732323www.agp.uni-bonn.de Department for Economic and Agricultural Policy Bonn University Nussallee 21 53115 Bonn, Germany
Reminder – General Model Layout Quantities Prices Iterations Comparative Static Equilibrium SupplyRegionaloptimisationmodelsPerennialsub-module MarketsMulti-commodityspatial market model
p s p0 p0 d q On convergence p s s d q
Conclusions • If “demand elasticity” > “supply elasticity”, it will converge, otherwise not • CAPRI has to be solved iteratively • Elasticities are chosen bases on economic criteria not to obtain convergence We will likely need some mechanism promote convergence in CAPRI
Different ways of promoting convergence • Adjustment cost: Additional production cost for deviating from the supply in the previous step • Price expectation: Supply uses weighted average of prices in several previous step. Used in CAPRI • Partial adjustment: Supply only moves a fraction of the way towards the optimum in each step • Approximate supply functions used in market instead of fixed supply. Used in CAPRI
Approximation of supply functions • The implicit supply function is unknown • Difficult to derive for CAPRI • Has non-differential points (corners) difficult to solve together with market model • Assume “any” simple supply function that approximates the supply model • Calibrate the parameters in each step so that the supply response of last step is reproduced
Assume the “explosive situation”… p0 Approximating supply p s s d q
Supply function is unknown (supply is a black box) Assume any supply function Starting with some price, compute supply Calibrate the assumed supply function to that point Solve supply + demand simultaneously for new price Iterate… s’ s’ p0 q0 Approximating supply p s s d q