A Logit technology for general equilibrium analysis

摘要: We propose a new Logit-based cost function as a foundation for the technology assumed in economic analysis. The technology departs from other Logit applications in that it does not require an outside good. This makes it internally consistent in general-equilibrium applications. In its non-separable nested form the proposed technology is shown to be flexible in calibration to any consistent local observation of the Slutsky matrix, and it remains convex globally on the open price simplex. The technology is “regular flexible.” We demonstrate the technology in the context of the context of radical reduction in fossil energy use. The implied costs under the GE-Logit technology are compared with the widely adopted constant-elasticity-of-substitution (CES) technology calibrated to an identical local benchmark.