The Elasticity of Derived Demand, FactorSubstitution and Product Demand: Corrections to Hicks’ Formula and Marshall’s Four Rules
Nearly 75 years ago, John Hicks introduced and formalized the concept of the elasticity of substitution between capital and labour and its relation to derived demand. The resulting formula has proven very useful in understanding the derived demand for productive factors, the distribution of factor incomes, and Marshall's Four Rules. This short paper notes that a slip occurred in the original derivation, presents a modified formula, and shows that Marshall's First Rule is no longer generally valid.
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- Daron Acemoglu, 2003.
"Labor- And Capital-Augmenting Technical Change,"
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MIT Press, vol. 1(1), pages 1-37, 03.
- Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014.
Sciences Po publications
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- Mario García Molina, 2005. "Capital theory and the origins of the elasticity of substitution (1932--35)," Cambridge Journal of Economics, Oxford University Press, vol. 29(3), pages 423-437, May.
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