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  • Notes On Displaced CES Functional Forms

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    Don Fullerton
    6 vizualizări25 pagini
    This document shows how to add another parameter to a Constant Elasticity of Substitution (CES) utility function, derive demand functions, and solve for indirect utility and expenditure functions for the evaluation of money metric utility welfare changes from a price or tax change. It also shows how to calibrate the model, by solving backwards for the parameters that must have existed to generate the observed data. KEYWORDS: economics, computation, general equilibrium, welfare

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    Notes on Displaced CES Functional Forms

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    This document shows how to add another parameter to a Constant Elasticity of Substitution (CES) utility function, derive demand functions, and solve for indirect utility and expenditure functions for the evaluation of money metric utility welfare changes from a price or tax change. It also shows how to calibrate the model, by solving backwards for the parameters that must have existed to generate the observed data. KEYWORDS: economics, computation, general equilibrium, welfare

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    © All Rights Reserved
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    6 vizualizări25 pagini

    Notes On Displaced CES Functional Forms

    Încărcat de

    Don Fullerton
    This document shows how to add another parameter to a Constant Elasticity of Substitution (CES) utility function, derive demand functions, and solve for indirect utility and expenditure functions for the evaluation of money metric utility welfare changes from a price or tax change. It also shows how to calibrate the model, by solving backwards for the parameters that must have existed to generate the observed data. KEYWORDS: economics, computation, general equilibrium, welfare

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    din 25
    NOTES ON DISPLACED CES FUNCTIONAL FORMS Don Fullerton, Fall 1989 The constant elasticity of substitution (CES) utility function can be "displaced" from the origin by the use of an extra b, parameter for each commodity: N wovtntze v= [Es 1 This functional form is written slightly differently, with a, to the power 1/0, so that a, will be marginal expenditure shares, with Ja, ~ 1. Notice that it reduces to three special cases GES: where all b, = 0. Stone-Ceary: (displaced Cobb-Douglas) where o - 1 (in Limit). f 1 u- I @-bp ia tf Cobb-Douglas: where all b, ~ 0 and o~ 1. For the most general form, we differentiate the Lagrangean: P(x, - by) 1 1 noi oo N a 7 fh af - >») ] - A 1h PSK, - 4) v= Ac - Yeyby) From * above, a1 oe L 77 _ ye an B85 A 7 Py - by) Raise to 9 power: oad = ATR, yay AT NPT OR ~ By) l-0 o-1, yayFy” = ATR, - by) x ao _ york ey a eee Naty Dy Jd a 1 From ** above:

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