This paper describes a numerical algorithm for approximating, in a sense to be explained below, a fixed point of such a mapping (Scarf 1967a: 1326).Scarf never built an AGE model, but hinted that “these novel numerical techniques might be useful in assessing consequences for the economy of a change in the economic environment” (Kehoe et al. 2005, citing Scarf 1967b).
Earlier analytic work with these models has examined the distortionary effects of taxes, tariffs, and other policies, along with functional incidence questions.
More recent applied models, including those discussed here, provide numerical estimates of efficiency and distributional effects within the same framework.
This algorithm would narrow down the possible relative prices through a simplex method, which kept reducing the size of the ‘net’ within which possible solutions were found.
AGE modelers then consciously choose a cutoff, and set an approximate solution as the net never closed on a unique point through the iteration process.