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

David Tarr

Eastern Economic Journal, 1990, vol. 16, issue 3, 257-264

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.

Date: 1990
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