Trade - EPPA

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Alert-warning.png Note: The documentation of EPPA is 'in preparation' and is not yet 'published'!

Model Documentation - EPPA

Corresponding documentation
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Model information
Model link
Institution Massachusetts Institute of Technology (MIT), USA,
Solution concept General equilibrium (closed economy)
Solution method Optimization

All goods in the model are traded in world markets with the base year data coming from the GTAP database. The Armington goods specification allows an explicit representation of bilateral trade flows, such that regions are both exporters and importers of a particular good. Bilateral trade flows involve export taxes, import tariffs, and international transport margins, all of which are explicitly represented in the model. Electricity trade is represented but very little trade occurs in the base data, and it only occurs among regionally contiguous regions. The share-preserving nature of the CES function tends to limit expansion of electricity trade, and, realistically given difficulty of transmission, prevents trade from ever occurring among two regions if it is not in the base data.

One exception is for crude oil, which is treated as a homogeneous product in standard EPPA, subject to tariffs, export taxes, and international transport margins. Therefore, for each region, only net exports or imports of crude oil are represented. Given the transportation costs and different products/grades involved we treat coal, gas, and refined oil as Armington goods.[1]

  1. Paltsev, S., Reilly, J., Jacoby, H., Eckaus, R., McFarland, J., Babiker, M., Paltsev, S., Reilly, J., Jacoby, H., Eckaus, R., McFarland, J., Babiker, M., 2005. The MIT emissions prediction and policy analysis (EPPA) model: version 4. MIT Joint Program Report 125. Cambridge, MA.