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A Modified Cournot Aggregation Condition for Obtaining Estimates of Cross-Elasticities of Demand

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  • David G. Tarr

    (World Bank)

Abstract

Insomuch as researchers who estimate cross elasticities of demand implicitly use the assumption of weakly separable utility or production, this paper explicitly uses weak separability to derive what it calls the "modified Cournot aggregation condition." The modified Cournot aggregation condition imposes a restriction on sum of the share weighted value of the cross elasticities. Consequently, the condition can be used to complement statistical testing of parameter values or be used in the estimation process itself. An example is provided of a three-region model of world steel trade where the condition has proved useful in avoiding perverse results.

Suggested Citation

  • David G. Tarr, 1990. "A Modified Cournot Aggregation Condition for Obtaining Estimates of Cross-Elasticities of Demand," Eastern Economic Journal, Eastern Economic Association, vol. 16(3), pages 257-264, Jul-Sep.
    • Handle: RePEc:eej:eeconj:v:16:y:1990:i:3:p:257-264
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume16/V16N3P257_264.pdf
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    References listed on IDEAS

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    1. L Alan Winters, 2015. "Separability And The Specification Of Foreign Trade Functions," World Scientific Book Chapters, in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 8, pages 149-173, World Scientific Publishing Co. Pte. Ltd..
    2. Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-281, May.
    3. Jondrow, James M & Chase, David E & Gamble, Christopher L, 1982. "The Price Differential between Domestic and Imported Steel," The Journal of Business, University of Chicago Press, vol. 55(3), pages 383-399, July.
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    2. Thomas, Brinda A. & Azevedo, Inês L., 2013. "Estimating direct and indirect rebound effects for U.S. households with input–output analysis. Part 2: Simulation," Ecological Economics, Elsevier, vol. 86(C), pages 188-198.
    3. Touhami Abdelkhalek & Dorothée Boccanfuso, 2021. "Impact of Tax Reforms in Applied Models: Which Functional Forms Should Be Chosen for the Demand System? Theory and Application for Morocco," CIRANO Working Papers 2021s-07, CIRANO.
    4. Sérgio Fracalanza, Paulo & Nunes Ferreira, Adriana & Fava Neves, Marcos, 2007. "Impacts of a liberalization in the USA market for Frozen Concentrated Orange Juice: why Florida´s producers are so afraid?," Revista de Economia e Sociologia Rural (RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 45(4), January.
    5. Thomas, Brinda A. & Azevedo, Inês L., 2013. "Estimating direct and indirect rebound effects for U.S. households with input–output analysis Part 1: Theoretical framework," Ecological Economics, Elsevier, vol. 86(C), pages 199-210.

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