Description

Model from Ermoliev et al, On Convergence of SJM
Model uses explicit demand functions
Computational issues with x2('2') = 0 at solution

gams exc2x2 --sol=mcp1
   This sets up the standard Arrow Debreu model and solves using MCP

gams exc2x2 --sol=mcp2
   This sets up the Ermoliev aggregate embedded model, solved using MCP

gams exc2x2 --sol=neg
   This does Negishi iterations on the Ermoliev embedded model - ie
   sequence of NLP's trying to get to fixed point on "budget"
   constraint.

Contributor: Michael Ferris, October 2010

Small Model of Type : EQUIL

Category : GAMS EMP library

Main file : exc2x2emp-dem.gms

$title pure exchange model (ie no production) (EXC2X2EMP-DEM,SEQ=58)

$onText
Model from Ermoliev et al, On Convergence of SJM
Model uses explicit demand functions
Computational issues with x2('2') = 0 at solution

gams exc2x2 --sol=mcp1
   This sets up the standard Arrow Debreu model and solves using MCP

gams exc2x2 --sol=mcp2
   This sets up the Ermoliev aggregate embedded model, solved using MCP

gams exc2x2 --sol=neg
   This does Negishi iterations on the Ermoliev embedded model - ie
   sequence of NLP's trying to get to fixed point on "budget"
   constraint.

Contributor: Michael Ferris, October 2010
$offText

$if NOT set sol $set sol mcp1

set i /1*2/;
alias(i,j);

parameter w1(j) 'endowment of player 1' /
            1 1
            2 1 /,
          w2(j) 'endowment of player 2' /
            1 1 /;

variables obj1, obj2, obj3;
positive variables p(j), x1(j), x2(j);
equations defobj1, defobj2, defobj3, budget1, budget2, norm;

defobj1.. obj1 =e= x1('2');
budget1..
 sum(j, p(j) * x1(j)) =l= sum(j, w1(j)*p(j));

defobj2.. obj2 =e= sqrt(x2('1')*x2('2'));
budget2..
  sum(j, p(j) * x2(j)) =l= sum(j, w2(j)*p(j));

* market player
defobj3.. obj3 =e= sum(j, p(j)*(x1(j) + x2(j) - w1(j) - w2(j)));
norm..
  sum(j, p(j)) =e= 1;

* The combined KKT forms a complementarity system
* solution is p = (0,1), x1 = (x11,1), x2 = (x21,0)
* with 0 <= x11 + x21 <= 2

* model does not satisfy gross substitutability assumption
* so tatonment process fails

file myinfo /'%emp.info%'/;
put myinfo 'equilibrium';
put      / 'max obj1 x1 defobj1 budget1';
put      / 'max obj2 x2 defobj2 budget2';
putclose / 'max obj3 p  defobj3 norm   ';

model nashemp /defobj1,defobj2,defobj3,budget1,budget2,norm/;

* protect function evaluations
* x1.lo(j) = 1e-6; x2.lo(j) = 1e-6;

x1.l(j) = 1;  x2.l(j) = 1;
p.l(j) = 1;
budget1.m = 1; budget2.m = 1; norm.m = 1;

$if %sol% == mcp1 solve nashemp using emp;

$onText
* Following is the complementarity model generated

equations d_x1(j), d_x2(j), d_p(j), Nbudget1, Nbudget2, Nnorm;
positive variables x1(j), x2(j), p(j), lambda1, lambda2;
free variables mu;

d_x1(j)..
  -1$sameas(j,'2') + lambda1*p(j) =g= 0;

* rewrite budget as negative due to "max" problem
Nbudget1..
 sum(j, w1(j)*p(j)) =g= sum(j, p(j) * x1(j));

* fix this constraint by multiplying through by x2(j)
d_x2(j)..
  -0.5*sqrt(x2('1')*x2('2')) + lambda2*p(j)*x2(j) =g= 0;
*  -0.5*sqrt(x2('1')*x2('2'))/x2(j) + lambda2*p(j) =g= 0;

Nbudget2..
  sum(j, w2(j)*p(j)) =g= sum(j, p(j) * x2(j));

d_p(j)..
   - x1(j) - x2(j) + w1(j) + w2(j) + mu =g= 0;

Nnorm..
  1 =e= sum(j, p(j));

model nashmcp /d_x1.x1,Nbudget1.lambda1,d_x2.x2,Nbudget2.lambda2,d_p.p,Nnorm.mu/;

lambda1.l = budget1.m; lambda2.l = budget2.m; mu.l = norm.m;
nashmcp.iterlim = 0;
solve nashmcp using mcp;

$offText

* new variables for negishi version
variable  utility, wVar(i)  'Negishi weights computed endogenously';

equations
  utilDef          'utility in Negishi version'
  prodLimit(j)
  budget(i)  'set income = expenditure';

utilDef .. utility =e=
        wVar('1') * log(x1('2'))
        + wVar('2') * 0.5 * sum(j, log(x2(j)));

budget(i) .. wVar(i) =e=
          sum(j, (w1(j)$sameas(i,'1') + w2(j)$sameas(i,'2')) * p(j));

prodLimit(j) ..
        x1(j) + x2(j) =l= w1(j) + w2(j);

model endogW     / utilDef, prodLimit, budget /;

model fixedW 'basic NLP model - fixed Negishi weights'      / utilDef, prodLimit /;

put myinfo '* negishi model';
put      / 'dualVar p prodLimit';
putclose / 'dualEqu budget wVar';

$if not %sol% == mcp2 $goTo skipmcp2

wVar.l(i) = 1;
* add a numeraire, since the weights are unique only
* in a relative sense
wVar.fx('1') = 1;

solve endogW maximizing utility using emp;

wVar.fx(i) = wVar.l(i);

solve fixedW maximizing utility using nlp;

$label skipmcp2

$if not %sol% == neg $goTo skipneg

set iters / iter1 * iter60 /;
scalar
  err / 1 /,
  m 'control the Negishi weight adjustment' / .95 /;
parameter
  wBarI(i,iters),
  errI(iters);

wVar.fx(i) = 1/card(i);
x1.lo(j) = 1e-6; x2.lo(j) = 1e-6;

loop {iters$[err > 1e-6],
  wBarI(i,iters) = wVar.l(i);
  solve fixedW using nlp maximizing utility;
  wVar.fx(i) = (1-m)*wVar.l(i) +
  m*(w1(i)$sameas(i,'1') + w2(i)$sameas(i,'2')) * prodlimit.m(i);
  err = sum(i, abs(wVar.l(i) - wBarI(i,iters)));
  errI(iters) = err;
};
* set prices for reporting purposes
p.l(j) = prodLimit.m(j);

display wBarI, errI;

$label skipneg

display x1.l, x2.l, p.l;