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Over-simplification and tractability in quasi-linear neg models



An inconsistency is found in the demand side of the NEG models developed in Pflüger (2004) that follows from the absence of a non-negativity constraint on the consumption of agricultural goods. This seriously weakens the results of the original paper and those of ensuing contributions in Pflüger and Südekum (2008a,b). A solution to this problem is developed which imposes severe restrictions on the relative size of two of the core model parameters, the implications of which are examined.
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  • Sylvain Barde & John Peirson, 2009. "Over-simplification and tractability in quasi-linear neg models," Documents de Travail de l'OFCE 2009-14, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:0914

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    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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