EXACT AGGREGATION IN MATHEMATICAL-PROGRAMMING SECTOR MODELS

This paper defines the exact aggregation problem in the sector modeling context and develops the theoretical basis of an aggregation procedure based on extreme point representation. Under the assumption of full information on all firms this procedure yields exact aggregation, irrespective of firm heterogeneity, and it also suggests empirical procedures for cases when full information is not present. Although aggregation in such cases is in general not exact, empirical evidence shows that little error is involved, and the aggregate model is rather stable under various parameter changes.