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Homothetic and Non-homothetic Scale Economies in Applied General Equilibrium Analysis

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  • Lawrence C. McDonough

Abstract

Oligopolists in the Harris general equilibrium trade model employ a homothetic or nonhomothetic constant elasticity of substitution decreasing cost function. The properties of the function are discussed and its empirical relevance is analyzed in the context of a multilateral free trade simulation. Results suggest that scale economies that do not rapidly diminish with increases in production-run lengths (as occurs in the fixed-cost paradigm) generate relatively large welfare and output changes under the simulation. Also, factor bias, as a departure from a homothetic technology, affects in an empirically significant manner both the optimal input ratios and the productive efficiency.

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  • Lawrence C. McDonough, 1992. "Homothetic and Non-homothetic Scale Economies in Applied General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 196-210, February.
    • Handle: RePEc:cje:issued:v:25:y:1992:i:1:p:196-210
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    Cited by:

    1. By Albert G. Schweinberger & Jens Suedekum, 2015. "De-industrialization and entrepreneurship under monopolistic competition," Oxford Economic Papers, Oxford University Press, vol. 67(4), pages 1174-1185.

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