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Elasticities of substitution and complementarity

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  • David Stern

Abstract

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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Suggested Citation

  • David Stern, 2011. "Elasticities of substitution and complementarity," Journal of Productivity Analysis, Springer, vol. 36(1), pages 79-89, August.
    • Handle: RePEc:kap:jproda:v:36:y:2011:i:1:p:79-89
    DOI: 10.1007/s11123-010-0203-1
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    27. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-1289, December.
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    More about this item

    Keywords

    Microeconomics; History of economic thought; Production; Substitution; Elasticity; B21; D12; D24;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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