This is Chapter 2 of my PhD thesis Understanding the World Wool Market: Trade, Productivity and Grower Incomes, UWA, 2006. In this chapter we present the tools used to construct the theoretical structure of the model presented in Chapter 3. The theory of the model is highly nonlinear but is specified in linearised form. In deriving the linearised form of the nonlinear functions, we make explicit the optimising behaviour that underlies the tools and their properties. We use the notational convention of expressing the levels form of a variable in capital letters and the percentage-change equivalent in lower case letters. We also discuss how the tools can be combined by assuming separability between functions.In this chapter we present the tools used to construct the theoretical structure of the model presented in Chapter 3. The theory of the model is highly nonlinear but is specified in linearised form. In deriving the linearised form of the nonlinear functions, we make explicit the optimising behaviour that underlies the tools and their properties. We use the notational convention of expressing the levels form of a variable in capital letters and the percentage-change equivalent in lower case letters. We also discuss how the tools can be combined by assuming separability between functions.
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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number
06-20.
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