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Rotterdam Model

[Home] [Up] [Formal Derivation] [Differential Demand] [Differential Input] [Other models] [Rotterdam Model]

IV.I.2 The Rotterdam model

For each element i, equation (IV.I.1-26) can be written as (on dropping *)

Rotterdam Model


Now we define




The elasticity of marginal consumption can thereby be found by combining (IV.I.2-2) and (IV.I.2-3) as


Furthermore, let


The definitions in (IV.I.2-3) and (IV.I.2-5) will be used as parameters that have to be estimated. This is possible due to the fact that both sets of parameters are dimensionless invariants over time.

Using (IV.I.1-20), the following vector equation can be easily found


and on using (IV.I.1-19), (IV.I.2-3), and (IV.I.1-9) it follows that


and consequently, using (IV.I.2-7) and (IV.I.2-3), this yields


Equation (IV.I.2-7) is a very important restriction implying that the number of parameters to be estimated can be reduced! This gain in degrees of freedom is considered one of the desired properties of the Rotterdam model.

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Formal Derivation
Differential Demand
Differential Input
Other models
Rotterdam Model
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