Volume Preserving CES and CET Formulations

Dominique van der Mensbrugghe () and Jeffrey C. Peters

GTAP Working Papers from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University

Abstract: As economists are increasingly working across disciplines, they are assessing alternative mathematical formulations to more closely align with the results from these disciplines. Two of the most widely used functional forms in quantitative economic analysis are the constant-elasticity-of-substitution (CES) and constant-elasticity-of-transformation (CET) functions. However, neither functional form preserves volume additivity, which may be a desirable feature in a number of contexts including labor and land allocation, energy systems, etc. This paper explores two alternatives to the ubiquitous CES and CET formulations, which have many of the same characteristics in terms of ease of implementation, but also preserve volume additivity. It illustrates some of the properties of the so-called additive forms of the CES and CET and assesses the impacts of switching to the additive CET in the context of land-use allocation in the Envisage model.

Date: 2020
Note: GTAP Working Paper No. 87
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