Athena’s Computable General Equilibrium Model

Athena is a single-user simulation to help U.S. Army intelligence analysts and others anticipate the consequences, intended and otherwise, of potential long-term stability and support operations in complex contemporary environments. Athena encompasses models of physical effects, politics, information, intelligence, civilian attitudes, demographics, and economics. Computable general equilibrium models (CGEs) have been under development by economists for fifty years and contributions to their development have led to several Nobel Prizes. A CGE is at the core of Athena’s economics model. This paper presents the derivation of Athena’s CGE and tells modelers how to expand the model to provide higher resolution. To use a CGE dynamically, we extracted all slowly changing and delayed economic phenomena and modeled them and all non-economic phenomena in other components of the simulation. One of the most important features of CGEs of stable regions is that their parameters can be calibrated by routinely available social accounting matrix data. In unstable regions, however, it would be naïve to use historical data blindly. By recognizing a distinction between shape and size parameters in the CGE model, data from nearby or similar regions and from recent times may be useful. A typical CGE computes a long-term equilibrium. In a simulation, long-term solutions are needed to estimate latent demands, but the simulation is driven by current events and by responses to mediumand short-term economic equilibria, in which only prices, production quantities, and perhaps jobs are assumed to respond quickly enough to reach equilibrium. As a result, three passes through the CGE are used at each simulation time step. CGEs typically assume that all markets are competitive and free. This can be a poor assumption in the regions of interest. In Athena applications, for example, international black markets, with exogenous prices determined by international competition, are often not only a major part of the economy, but a source of funding for insurgents.