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The Morishima Gross Elasticity of Substitution

Author

Listed:
  • Blackorby, Charles

    (University of Warwick)

  • Primont, Daniel

    (Southern Illinois University)

  • Russell, R. Robert

    (University of California, Riverside)

Abstract

We show that the Hotelling-Lau elasticity of substitution, an extension of the Allen-Uzawa elasticity to allow for optimal output-quantity (or utility) responses to changes in factor prices, inherits all of the failings of the Allen-Uzawa elasticity identified by Blackorby and Russell [1989 AER]. An analogous extension of the Morishima elasticity of substitution to allow for output quantity changes preserves the salient properties of the original Hicksian notion of elasticity of substitution.

Suggested Citation

  • Blackorby, Charles & Primont, Daniel & Russell, R. Robert, 2007. "The Morishima Gross Elasticity of Substitution," The Warwick Economics Research Paper Series (TWERPS) 787, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:787
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_787.pdf
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    References listed on IDEAS

    as
    1. David Stern, 2011. "Elasticities of substitution and complementarity," Journal of Productivity Analysis, Springer, vol. 36(1), pages 79-89, August.
    2. Charles Blackorby & R. Robert Russell, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and its Relationship to the Hicks and Allen Elasticities," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 147-158.
    3. 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 882-888, September.
    4. Paolo Bertoletti, 2001. "The Allen/Uzawa Elasticity of Substitution as a Measure of Gross input Substitutability," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 87-94.
    5. George C. Davis & C. Richard Shumway, 1996. "To Tell the Truth about Interpreting the Morishima Elasticity of Substitution," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 44(2), pages 173-182, July.
    6. Lau, Lawrence J., 1978. "Applications of Profit Functions," Histoy of Economic Thought Chapters,in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 3 McMaster University Archive for the History of Economic Thought.
    7. Paolo Bertoletti, 2005. "Elasticities of Substitution and Complementarity: A Synthesis," Journal of Productivity Analysis, Springer, vol. 24(2), pages 183-196, October.
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    Citations

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    Cited by:

    1. William A. Barnett & Isaac Kalonda Kanyama, 2013. "Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up?," Applied Economics, Taylor & Francis Journals, vol. 45(29), pages 4169-4183, October.
    2. Baral, Ranju & Davis, George C. & You, Wen, 2011. "Consumption time in household production: Implications for the goods-time elasticity of substitution," Economics Letters, Elsevier, vol. 112(2), pages 138-140, August.
    3. William A. Barnett & Isaac Kalonda Kanyama, 2013. "Time-varying parameters in the almost ideal demand system and the Rotterdam model: will the best specification please stand up?," Applied Economics, Taylor & Francis Journals, vol. 45(29), pages 4169-4183, October.
    4. Yijian He & Subhash C. Sharma, 1995. "The Morishima Elasticity of Substitution for the Profit Function," Microeconomics 9502002, EconWPA, revised 17 Feb 1995.
    5. Timothy Park & Johannes Sauer, 2013. "Evaluating food retailers using dual elasticities of substitution," Journal of Productivity Analysis, Springer, vol. 39(2), pages 111-122, April.
    6. Elena Burmistrova & Sergey Lobanov, 2018. "The Allen--Uzawa elasticity of substitution for nonhomogeneous production functions," Papers 1802.06885, arXiv.org.
    7. David Stern, 2011. "Elasticities of substitution and complementarity," Journal of Productivity Analysis, Springer, vol. 36(1), pages 79-89, August.
    8. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
    9. Albert Okunade & Vasudeva Murthy, 2008. "Are physician and non-physician providers of outpatient mental healthcare substitutes or complements? a conceptual clarification," Health Care Management Science, Springer, vol. 11(4), pages 393-398, December.

    More about this item

    Keywords

    elasticity of substitution ; relative factor shares ; homotheticity;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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