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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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torbj rn jansson
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
Reminder – General Model Layout

Quantities

Prices

Iterations

Comparative Static Equilibrium

SupplyRegionaloptimisationmodelsPerennialsub-module

MarketsMulti-commodityspatial market model

on convergence

p

s

p0

p0

d

q

On convergence

p

s

s

d

q

conclusions
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
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
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
approximating supply1
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

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