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Three applications of regional CGE models

Date

2014

Authors

Hannum, Christopher M., author
Cutler, Harvey, advisor
Shields, Martin, committee member
Pena, Anita, committee member
Villupuram, Sriram, committee member

Journal Title

Journal ISSN

Volume Title

Abstract

This dissertation focuses on the development of the basic Colorado (CO) CGE model, a generalized multi-sector, multi-household dynamic, myopic, single region CGE model created for the State of Colorado in GAMS MPSGE. Three model variants are constructed and described, built in order to analyze specific policies in areas of the model for the same region with maximum detail while maintaining general model tractability. The first model variant, the Colorado Real Estate (CO-RE) model, adds significant detail to capital and property markets including one critical feature of such markets not generally found in CGE models - sluggish price and quantity adjustment. The second model variant, the Colorado Energy (CO-E) model adds significant detail to production and consumption of electricity. The third model variant, the Colorado Demography (CO-D) model, adds significant detail to the process of long-run, endogenous demographic change and the production of higher education. The three model variants are used to analyze the impacts on the Colorado economy of, respectively, a transition to alternative workplace strategies, Colorado energy and climate polices and the potential defunding of higher education in the state. This dissertation is an embodiment of and evidence for the greatest strength of the CGE modeling technique - such models are flexible and broadly applicable to nearly any economic issue or phenomenon. Simulation results from the CO-RE model suggest that the economic impacts of a transition to alternative workplace strategies would be modest in terms of macroeconomic aggregates, but positive. The transition results in a fall in investment as shrinking office capital stock outweighs increased investment into other property types. However, the productivity enhancement leads to increases in incomes, consumption and employment that offset the drop in investment. Increases in consumption and employment are small. Within the office property market, effects of such a transition would be dramatic with vacancy rates rising to 40% in and rents falling as much as 80%. A transition to AWS is expected to lead to falling property tax revenues for local governments as the size of the commercial property tax base shrinks. As specified in the CO-E model, given a set of plausible assumptions regarding levelized costs of generation over the lifetime of a project, costs associated with intermittency and future federal subsidies the Colorado renewable portfolio standard has a positive impact on economic aggregates in the state relative to a baseline scenario. The impact of the Clean Air - Clean Jobs Act which accelerates a transition towards natural gas is negative on macroeconomic aggregates. The economy of the State of Colorado is found to be substantially exposed to rising natural gas prices due to decreasing natural gas sector productivity. The RPS is not a job creator, but the RPS adds to consumption and incomes in all scenarios but that with extremely low natural gas prices. The RPS is found to serve as a hedge for the state against rising natural gas prices, and a hedge with positive net benefit in many scenarios. Defunding higher education reallocates money from higher education subsidies to production of government services. The defunding of higher education, by reducing production and consumption of higher education in the state, is found to reduce economic output and total real per capita consumption in the state though it does not always reduce employment in spite of the fact that the baseline scenario includes "excessive" production of higher education that causes the wage premium for college educated workers to fall. When total factor productivity is assumed to rise, the negative impact of defunding increases. Estimates for the real net per capita consumption impact of defunding are found to be sensitive to a variety of plausible parameter estimates for the responsiveness of higher education demand to tuition and the wage premium, though impacts of defunding remain negative.

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Subject

alternative workplace strategies
regional computable general equilibrium modeling
human capital
energy policy

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