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Empirical Estimation of the Elasticity of Substitution : A Review


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  • Vern Caddy
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    This review of time series and cross-sectional studies indicates that there is little agreement as to the "true" value of the elasticity of substitution. There appears to be no clear-cut explanation for the diversity of the estimates. Not only do the various studies attribute widely different absolute levels to the elasticity of substitution in the industries considered, but there is also no apparent consistency between the ordinal rankings of the industries within each study. There is however a general pattern of differences between the cross-sectional and time series estimates -- namely, the former are usually larger (averaging about 1) than the latter (averaging perhaps about 0.5). Please note: The PDF download of this fairly old paper is an optical scan.

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    File Function: Initial version, 1976-11
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    Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number op-09.

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    Date of creation: Nov 1976
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    Handle: RePEc:cop:wpaper:op-09

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    Keywords: Capital; labour; elasticity of substitution;

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    Cited by:
    1. de Melo, Jaime & Stanton, Julie & Tarr, David, 1989. "Revenue-raising taxes: General equilibrium evaluation of alternative taxation in U.S. petroleum industries," Journal of Policy Modeling, Elsevier, vol. 11(3), pages 425-449.
    2. Young, Andrew T., 2013. "U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level," Macroeconomic Dynamics, Cambridge University Press, vol. 17(04), pages 861-897, June.
    3. Don Fullerton & Gilbert Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," NBER Working Papers 6091, National Bureau of Economic Research, Inc.
    4. Bakoup, Ferdinand & Tarr, David, 1998. "How integration into the Central African Economic and Monetary Community affects Cameroon's economy: general equilibrium estimates," Policy Research Working Paper Series 1872, The World Bank.
    5. Jean Lim & Carolina Rodríguez-Zamora, 2010. "The Optimal Tax Rule in the Presence of Time Use," Working Papers 2010-05, Banco de México.
    6. Fullerton, Don & Metcalf, Gilbert E., 2002. "Cap and trade policies in the presence of monopoly and distortionary taxation," Resource and Energy Economics, Elsevier, vol. 24(4), pages 327-347, November.
    7. Lawrence H. Goulder & John B. Shoven & John Whalley, 1982. "Domestic Tax Policy and the Foreign Sector: The Importance of Alternative Foreign Sector Formulations to Results from a General Equilibrium," NBER Working Papers 0919, National Bureau of Economic Research, Inc.
    8. Rod Tyers & Yongzheng Yang, 1997. "Trade with Asia and skill upgrading: Effects on labor markets in the older industrial countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 383-418, September.
    9. Sherony, Keith R. & Knowles, Glenn J. & Boyd, Roy, 1991. "The Economic Impact Of Crop Losses: A Computable General Equilibrium Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(01), July.
    10. Adams, Philip D., 1987. "Agricultural Supply Response in ORANI," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 55(03), December.


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