Elasticities of Substitution and Complementarity
This paper develops a classification scheme of the many different definitions of elasticities of substitution and complementarity in the production case based on duality, gross and net substitution, elasticity type, and four different basic concepts of substitution and complementarity is developed. The classic Berndt-Wood dataset is used to show how the various elasticities differ. This variation is considerable and shows that the correct elasticity should be used for the intended purpose – there is no one true elasticity of substitution. The paper also reintroduces and clarifies Pigou’s contributions to the debate on the elasticity of substitution after seventy years of obscurity in which they have not been cited.
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- Blackorby, Charles & Russell, R Robert, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and Its Relationship to the Hicks and Allen Elasticities," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 147-58, January.
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- Syrquin, Moshe & Hollender, Gideon, 1982. "Elasticities of Substitution and Complementarity: The General Case," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 515-19, November.
- Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September.
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- Hongil Lim & C. Richard Shumway, 1997. "Technical Change and Model Specification: U.S. Agricultural Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 543-554.
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- Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
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