MIRAGE is a multisector, multiregion CGE model that operates in a sequential dynamic recursive set-up.
From the supply side in each sector, the production function is a Leontief function of value-added and intermediate inputs. The intermediate inputs function is a nested two-level constant elasticity of substitution (CES) function of all goods. This means that substitutability exists between two intermediate goods, but that goods can be more substitutable when they are in a same category (such as agricultural inputs or service inputs). Value-added is also built as a nested structure of CES functions of unskilled labor, land, natural resources, skilled labor, and capital. This nesting allows the modeler to incorporate some intermediate goods that are substitutes of factors, such as energy or fertilizers.
source: MIRAGE model
Factor endowments are fully employed. Capital supply is modified each year because of depreciation and investment. New capital is allocated among sectors according to an investment function. Growth rates of labor supply are fixed exogenously. Land supply is endogenous and depends on the real remuneration of land. Skilled labor is the only factor that is perfectly mobile; unskilled labor is imperfectly mobile between agricultural and nonagricultural sectors according to a constant elasticity of transformation (CET) function. Unskilled labor’s remuneration in agricultural activities is different from that of nonagricultural activities. The only factor whose supply is constant is the natural resources factor. It is, however, possible to endogenously change the factor endowment in the baseline in order to reflect long-term depletion of resources with respect to a price trajectory.
The demand side is modeled in each region through a representative agent whose propensity to save is constant. The rest of the national income is used to purchase final consumption. Preferences between sectors are represented by a linear expenditure system–constant elasticity of substitution (LES– CES) function, calibrated on U.S. Department of Agriculture Economic Research Service (ERS/USDA) income and price elasticities to best reflect non-homothetic demand patterns with changes in revenue (see Seale, Regmi, and Bernstein 2003). The sector subutility function used in MIRAGE is a nesting of four CES functions. Armington elasticities are drawn from the GTAP 7 database and are assumed to be the same across regions. The other elasticities used in the nesting for a given sector are linked to the Armington elasticity by a simple rule (see Bchir et al. 2002 for more details).
Macroeconomic closure is obtained by assuming that the sum of the balance of goods and services is constant over time.
A dynamic version of the model allows for it to be solved sequentially and the equilibrium to be moved from one year to another, thereby evaluating the long-term effects of such changes.
For AGRODEP purposes, a new, simplified version of MIRAGE will be developed to have a flexible and transparent multi-country, multisector model that is adapted for training as well as real world application purposes and to avoid complex specifications that would require data for the calibration which may not be available at the start of the Consortium. For example, the imperfect competition version of the MIRAGE model requires data on number of firms, average markups, and fixed costs of production in industry and services; these data are very difficult to come by for all African countries and will require some time for them to be collected as the Consortium matures. We aim to ensure broad availability of the model as an international public good, which requires the Consortium to enter into an agreement with CEPII, the original owner of the model, by making a simplified version publicly available.