A New Demand-Supply Decomposition Method for a Class of Economic Equilibrium Models

Development and management of a large scale equilibrium model can be much moreefficient if it is broken into its natural, almost independent parts, whichare brought together only when a global solution is desired. We present a newdecomposition algorithm, for non-optimization models of equilibrium, whichintegrate a price-dependent demand component with a linear programming supplycomponent. This method allows for further decomposition of the supply side,e.g., by region or commodity. Existing demand-supply decomposition methods foreconomic equilibrium models, based on the cobweb algorithm, may fail toconverge. Our new demand-supply decomposition method based on theDantzig–Wolfe decomposition principle, converges in a finite number ofiterations. We demonstrate the algorithm with a model of Canadian energysupplies and demands. Copyright Kluwer Academic Publishers 2003