Questions tagged [elasticity-of-substituion]
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6
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1answer
56 views
Econ Intuition for Jacobian inverse in demand system
Consider the following simple linear demand system (in vector notation) with n different products
Demand: $\quad\mathbf{q=B\left(a-P\right)}$
Inverse demand: $\quad\mathbf{p=a-B^{-1}q}$
where $\...
0
votes
1answer
38 views
Elasticity of substitution between leisure in two periods
This is a basic question, but I am new to macro models. The question is from Romer's text.
Assume a household only has one member and has no initial wealth, and the household lives for two periods. ...
0
votes
1answer
42 views
Second order partial derivative and cross second-order partial derivative
I'm following a paper (Full text available here!) where at some point (pag.17 and 20) the author get the following derivative:
$$\frac{\partial V}{\partial L}=Y-X\frac{dY}{dX}=\alpha X^{-\frac{c}{b}}...
1
vote
0answers
60 views
Demand Elasticity, Factor Substitution: Independent?
Given $ Y=f(K,L;\sigma) $, the effect on labor from a change in the price of capital can be gauged through a substitution effect and a scale effect:
\begin{align*}
\frac{\partial L}{\partial r} & ...
2
votes
1answer
86 views
Wages, capital: Substitution and Output Effects
Consider a CES production function $Y=f(K,L)$ with elasticity of factor substitution $\sigma>0$.
The substitution effect of higher real wages naturally implies a shift along the isoquant to more $...
1
vote
0answers
35 views
Elasticity of substitution meaning
If I computed an elasticity of substitution of f.e. 0.9 between capital and labour, does this implicate that the factors are rather well substitutable or not? Since for 0 they are perfect complements ...
1
vote
0answers
19 views
Raising the elasticity of substitution in an economy
Papers such as de la Grandville (1989) and Klump/de la Grandville (2000) have shown that a higher elasticity of substitution leads to higher economic growth. My question is, if there is a way to ...
1
vote
0answers
53 views
Linearization of VES production funtions
I know that the linearization of a CES (constant elasticity of substitution) funtion is a bit complicated. There is even an R package dedicated just for that - the econometric estimation and ...
2
votes
1answer
34 views
Empirical measurements of consumption and production elasticity of substitution?
The consumption elasticity of substitution (ES) is the ES between different consumption goods.
The production ES is the ES between factors of production.
My question is: are there any serious ...
2
votes
1answer
208 views
CES production function application problem
I'm currently trying to do some estimations using the micEconCES package in R by Henningsen/Henningsen (2011). My issue is that I am not very familiar with R and I'm trying to implement my own dataset ...
0
votes
1answer
85 views
Interpretation: Elasticitity of Substitution [closed]
I have this production function:
$$P(x_1,x_2)=x_1+x_1*x_2$$
I am trying to find the elasticity of substitution, and I found this:
$$\sigma = -\frac{d \ln (\frac{x_2}{x_1})}{d \ln(\frac{x_1}{1+x_2})}...
4
votes
1answer
227 views
Complementarity in CES Production Function
I'm reading Fisher (1997, Journal of Monetary Economics). From the intermediate goods produced ($Y_t$), the final goods firm allocates into consumption ($C_t$), business capital investment ($I_{b,t}$),...
4
votes
2answers
127 views
Is optimal labour zero when (i) capital fixed and (ii) elasticity of substitution less than 1?
I am getting some "weird results". I find that in a CES, with short term fixed capital and elasticity of substitution smaller than one, it is optimal for firms to hire zero labour, which seems at odd ...
-3
votes
2answers
157 views
How do find elasticity of substitution for this function
The motive of my post is in search of some help in order to understand the correct way to find the elasticity of substitution by means of calculating the following function.
$$f(K, L)=\frac{K^{2}L^{...
1
vote
0answers
71 views
CES utility in dynamic setting
Suppose I have a multiperiod consumption-saving problem with two or multiple goods able to be consumed.
If the utility within a period is Constant Elasticity of Substitution, ie. $C = (c_1^\frac{\...
1
vote
0answers
161 views
How does one derive the elasticity of substitution with implicit functions?
I would like to derive the elasticity of substitution. I'm aware that such a thread with a very straightforward explanation already exists, but my case is slightly different and I'm not sure how to ...
4
votes
1answer
149 views
Obj function yielding independent goods demand functions
I know that if the objective function (aka utility) is homothetic, demand functions will be linear in income. So for an homothetic demand function to give goods independent of prices other than their ...
6
votes
0answers
411 views
Estimating elasticity of substitution in nested CES functions
I have aggregate data on $L_t, K_t$ and $X_t$, and want to estimate elasticity of substitution parameters, $\gamma$ and $\sigma$ for these factors. Assuming the production function takes the following ...
