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We know Slutsky equation decomposes the price effect into substitution effect and income effect, where the substitution effect is the partial derivative of Hicksian demand function against the change of price.

So it seems this substitution effect comes from Hicksian method rather than Slutsky method? I mean, this effect is found by using Hicksian compensation that keeps utility unchanged?

Any clarification?

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  • $\begingroup$ Have you tried replicating the derivation using Slutsky compensation and Marshallian demand? $\endgroup$
    – Giskard
    Commented Jan 23 at 9:08
  • $\begingroup$ The naming is definitely retroactive as Hicks was 11 when Slutsky's paper came out. $\endgroup$
    – Giskard
    Commented Jan 23 at 9:13
  • $\begingroup$ It simply states that the price derivatives of Hicksian demand function is the Slutsky substitution matrix, but I don't know how $\endgroup$
    – Nonenicht
    Commented Jan 23 at 10:17

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