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Isoelastic elasticity of substitution production functions

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  • Jakub Growiec

Abstract

We generalize the normalized Constant Elasticity of Substitution (CES) production function by allowing the elasticity of substitution to vary isoelastically with (i) relative factor shares, (ii) marginal rates of substitution, (iii) capital–labor ratios, or (iv) capital–output ratios. Ensuing four variants of Isoelastic Elasticity of Substitution (IEES) production functions have a range of intuitively desirable properties and yield empirically testable predictions for the functional relationship between relative factor shares and capital–labor ratios.

Suggested Citation

  • Jakub Growiec, 2015. "Isoelastic elasticity of substitution production functions," NBP Working Papers 201, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:201
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    Cited by:

    1. Francesco Menoncin & Stefano Nembrini, 2018. "Stochastic continuous time growth models that allow for closed form solutions," Journal of Economics, Springer, vol. 124(3), pages 213-241, July.
    2. Growiec, Jakub, 2018. "Factor-specific technology choice," Journal of Mathematical Economics, Elsevier, vol. 77(C), pages 1-14.
    3. Jakub Growiec & Peter McAdam & Jakub Mućk, 2021. "On the Optimal Labor Income Share," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-52, October.
    4. Jakub Growiec, 2019. "The Hardware–Software Model: A New Conceptual Framework of Production, R&D, and Growth with AI," Working Paper series 19-18, Rimini Centre for Economic Analysis.
    5. Bellocchi, Alessandro & Travaglini, Giuseppe, 2023. "Can variable elasticity of substitution explain changes in labor shares?," Journal of Macroeconomics, Elsevier, vol. 76(C).
    6. Bellocchi, Alessandro & Marin, Giovanni & Travaglini, Giuseppe, 2023. "The labor share puzzle: Empirical evidence for European countries," Economic Modelling, Elsevier, vol. 124(C).
    7. Cicowiez, Martin & Lofgren, Hans, 2019. "Asymmetric Armington Model: Method and Application," Conference papers 333079, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Ainagul T. Mamyralieva & Aziza B. Karbekova & Gulchehra B. Abdyrahmanova, 2022. "Analysis of the economic sectors? sustainability of the Kyrgyz Republic," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 0(2), pages 185-204.
    9. Saad Labyad & Mehdi Senouci, 2018. "Deriving multiple-input production and utility functions from elasticities of substitution functions ," Working Papers hal-01866275, HAL.

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    More about this item

    Keywords

    production function; factor share; elasticity of substitution; marginal rate of substitution; normalization.;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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