Finding Nonlinear Production -- Consumption Equilibrium

TL;DR

This paper introduces the nonlinear production-consumption equilibrium (NPCE), a comprehensive model generalizing classical LP and IO models, with a focus on existence, uniqueness, and efficient solution methods using projection algorithms.

Contribution

It formulates NPCE as a variational inequality problem, proves its existence and uniqueness under natural conditions, and develops low-cost projection methods for solving it.

Findings

NPCE exists and is unique under certain conditions.

Projection methods efficiently solve the NPCE VI.

NPCE generalizes Walras-Wald equilibrium.

Abstract

We introduce and study nonlinear production - consumption equilibrium (NPCE). The NPCE is a combination and generalization of both classical linear programming (LP) and classical input-output (IO) models. In contrast to LP and IO the NPCE has both production and consumption components. Moreover, the production cost, the consumption and the factors (resources) availability are not fixed. Instead they are corespondent functions of the production output, prices of goods and prices of factors. At the NPCE the total production cost reaches its minimum, while the total consumption, without factors expences, reaches its maximum. At the same time the production cost is consistent with the production output, the consumption is consistent with the prices for goods and the factors availability is consistent with prices for factors. Finding NPCE is equivalent to solving a variational inequality (VI) with a particular nonlinear operator and a simple feasible set. Under natural assumptions on the production, consumption and factor operators the NPCE exists and it is unique. Projection on the feasible set {\Omega} is a low cost operation, therefore for solving the VI we use two projection methods. Each of them requires at each step few matrix by vector multiplications and allows, along with convergence and convergence rate, establish complexity bound. The methods decompose the problem, so both the primal and the dual variables are computed simultaneously. On the other hand, both methods are pricing mechanisms for establishing NPCE, which is a generalization of Walras - Wald equilibrium (see [12]) in few directions.