Homothetic and Non-homothetic Scale Economies in Applied General Equilibrium Analysis
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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Volume (Year): 25 (1992)
Issue (Month): 1 (February)
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