Implicit Additivity as a Strategy for Restricting The Parameter Space in CGE Models

The purpose of this paper is to illustrate the value of the Constant Difference Elasticity (CDE) functional form in applied general equilibrium analysis. It is a natural generalization of the commonly used CES form which permits the researcher to calibrate preferences to complete vectors of own-price and income elasticities. Similarly revenue and cost functions may be calibrated to appropriate vectors of compensated own-price elasticities of supply and demand. Because the CDE is an implicit functional form, its incorporation into a CGE model requires some additional steps. These are discussed and a tworegion, three good illustration is provided.