Combining bottom-up and top-down
Abstract
We motivate the formulation of market equilibrium as a mixed complementarity problem which explicitly represents weak inequalities and complementarity between decision variables and equilibrium conditions. The complementarity format permits an energy-economy model to combine technological detail of a bottom-up energy system with a second-best characterization of the over-all economy. Our primary objective is pedagogic. We first lay out the complementarity features of economic equilibrium and demonstrate how we can integrate bottom-up activity analysis into a top-down representation of the broader economy. We then provide a stylized numerical example of an integrated model - within both static and dynamic settings. Finally, we present illustrative applications to three themes figuring prominently on the energy policy agenda of many industrialized countries: nuclear phase-out, green quotas, and environmental tax reforms.
- Publication:
-
Energy Economics
- Pub Date:
- 2008
- DOI:
- 10.1016/j.eneco.2007.03.004
- Bibcode:
- 2008EneEc..30..574B
- Keywords:
-
- C61;
- C68;
- D58;
- Q43