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Revisiting, from a Frischian point of view, the relationship between elasticities of intratemporal and intertemporal substitution

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Abstract

How are substitution in the spatial and in the temporal sense connected? Can estimates based on data with spatial variation be transmitted into values appropriate for exploring temporal variation, and vice versa? This paper, building on, inter alia, Frisch (1959), attempts to give some clarifications and provides elements of a synthesis. The income elasticity of the marginal utility of income, whose inverse is often called the ‘Frisch parameter’, and its multi-period counterpart, the wealth elasticity of the marginal utility of wealth, are key concepts. Three cases with additive preferences are discussed, and in that context the role of the (generalized) ‘Frisch parameter’ as an overall measure of substitution across commodities and over time is reconsidered.

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  • Biørn, Erik, 2017. "Revisiting, from a Frischian point of view, the relationship between elasticities of intratemporal and intertemporal substitution," Memorandum 04/2017, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2017_004
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2017/memo-04-2017.pdf
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    More about this item

    Keywords

    Frisch elasticity; Frisch demand; Intertemporal substitution; Additive preferences; Marginal utility of Income; Marginal utility of wealth;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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