Computing equilibria for markets with constant returns production technologies

This paper is concerned with the computation of equilibrium for an exchange economy with constant returns production technologies. We convert such an economy into a pure exchange economy by allocating the production to each consumer's endowment evenly. In this way, the market clearing condition of the original economy is reformulated as that of a pure exchange economy, together with an additional complementarity condition to ensure the feasibility of production plans. A homotopy method is proposed to solve these two problems simultaneously. With this approach, the economic equilibrium model with constant returns production can be handled in a similar way to the pure exchange economy. A path-following algorithm is then developed for computing equilibria in these economies.

Automated summary

This paper discusses the computation of equilibrium in an exchange economy with constant returns production technologies. By converting the economy into a pure exchange economy and introducing a complementarity condition, feasibility of production plans is ensured. A homotopy method and path-following algorithm are proposed to solve these problems simultaneously.