Abstract
The crowding-out effect has received considerable attention in recent years. Models of crowding out can be categorized into ex-ante and ex-post theories. Within the category of ex-ante theories are those models that rely upon direct substitution effects [e.g., Bailey (1972), David and Scadding (1974)). This paper presents a theoretical model that includes different theories of direct substitution effects as special cases. Once parameter restrictions are associated with the various forms of direct substitutability, the paper performs tests of the alternative hypotheses.
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