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The Morishima Gross elasticity of substitution

By Charles Blackorby, Daniel Primont and R. Robert Russell

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

Topics: HB
Publisher: University of Warwick, Department of Economics
Year: 2007
OAI identifier: oai:wrap.warwick.ac.uk:1417

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