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 more efficient if it is broken into its natural, almost independent parts, which are brought together only when a global solution is desired. We present a new decomposition algorithm, for non-optimization models of equilibrium, which integrate a price-dependent demand component with a linear programming supply component. This method allows for further decomposition of the supply side,e.g., by region or commodity. Existing demand-supply decomposition methods for economic equilibrium models, based on the cobweb algorithm, may fail to converge. Our new demand-supply decomposition method based on the Dantzig-Wolfe decomposition principle, converges in a finite number of iterations. We demonstrate the algorithm with a model of Canadian energy supplies and demands. © 2003 Kluwer Academic Publishers.