The possibility of an international agreement to control the world marketing of cocoa is imminent. Aiming to develop a useful tool to determine the response of the sectors of the industry, to specific policy measures, a theoretical model of the cocoa economy is constructed.

In developing this model, the characteristics and behavior of the industry is taken into account, together with economic theory. First, a simplified model is presented, showing the basic features of the industry. Next, the supply and demand structures are formulated separately. These structures then, are combined to form a complete model of the cocoa economy.

With this model as a premise, an attempt to estimate the long run demand elasticities for cocoa in the United States is undertaken. To estimate these long run elasticities, a dynamic model based on the theory of distributed lags is used. The model is of the type proposed by Koyck and later developed by Nerlove and Martin.

The analysis of the data shows that the best approach to account for long run fluctuations is using a simultaneous equations model. A structural change occurring in the industry in the postwar period, prevents the estimation of long run elasticities, because of the limited number of observations.