I have some trouble following the explanation of the elasticity of substitution between capital and labor and its implications on p189.
Take this part:
The relevant question is whether the elasticity of substitution between labor and capital is greater or less than one. If the elasticity lies between zero and one, then an increase in the capital/income ratio β leads to a decrease in the marginal productivity of capital large enough that the capital share α = r × β decreases (assuming that the return on capital is determined by its marginal productivity).
Specifically, when he talks about that elasticity, does he mean something like (dL/L)/(dK/K) with L for labor and K for capital? Assuming that, how exactly does a higher elasticity translate in a lower fall in marginal product of capital?