Econometrica: Mar 1978, Volume 46, Issue 2

Aggregate CES Input Demand with Polytomous Micro Demand

https://doi.org/0012-9682(197803)46:2<365:ACIDWP>2.0.CO;2-9
p. 365-378

Anthony G. Lawrence, Richard J. McDonald

The conditions under which aggregate CES demand behavior is consistent with polytomous choice by micro demanders are explored. Several special cases are treated in which either the relative efficiency or the relative input price is assumed to vary randomly over the micro units. In each case it is shown that the random variable must have either a log-logistic (Burr) distribution function or a generalization thereof if the aggregate and the micro behavior are to be consistent.

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