Solving models with inequalities using standard econometric software

Simultaneous econometric models may contain pairs of complementary inequalities. It is discussed how to reformulate such models and solve them with econometric software which can handle only equalities. Two approaches are applied: the normal map representation and the Fischer–Burmeister NCP function. The latter seems to work best. The software programs TSP, SAS/ETS and EViews are tested. The test model describes two markets for electricity, each with fluctuating demand and an endogenous production capacity; the capacity of the trade link between the regions is also endogenous.