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Independently devised by John Hicks and Joan Robinson, the elasticity of substitution (σ) plays an important role in mainstream theories of inequality. This paper examines the role of σ in Robinson's writings, charting the differing ways in which she used it to examine questions of distribution. Robinson initially applied the concept to examine distribution in a Keynesian framework, proceeding to downplay its importance later on in spite of having played a central role in its formulation. Her criticisms of the nature of neoclassical production functions led her to dismiss mainstream theories of distribution as tautological, while seeing σ as an expression of the potential for rising profit shares under full employment. The use of a single parameter such as the substitution elasticity in mainstream frameworks neglected the important role played by investment and institutions, drawing focus away from an understanding of the ‘rules of the game’ that determined distributive shares in capitalist economies. Given the primacy of σ in discussions today — in textbooks and in the works of economists such as Thomas Piketty — her writings offer an important critique of established frameworks, while also advancing alternatives that stress the role of institutions and class conflict in modern economies. [ABSTRACT FROM AUTHOR]

This paper presents a new way to estimate the constant elasticity of substitution $ (\sigma ). $ (σ). We show that the link between $ \sigma $ σ and Divisia index numbers gives rise to a revealing way to obtain preliminary estimates of $ \sigma $ σ. This approach, which is related to stochastic index numbers, is illustrated with time-series and cross-country data. Using consumption data for 12 commodities over time from 23 European countries, we obtain 400 + estimates of $ \sigma $ σ, which mostly lie between 0 and 1. The cross-country estimates are broadly similar. Extensions of the approach to deal with endogenous prices and non-homothetic demand are also considered. [ABSTRACT FROM AUTHOR]

This paper examines the causes of falling labour share in OECD and non-OECD countries since the 1980s by using Karabarbounis and Neiman's (2014) labour share model. While both groups of countries experience an elasticity of substitution between capital and labour, the factors driving down labour share are different. In OECD countries, export and volatility are key drivers, but in non-OECD countries, the significant factors are financial openness and the capital's relative price. Overall, technological advancement – as reflected by declining capital's relative price – coupled with globalization and low economic risk are key factors in explaining a long-term decline of labour share worldwide. [ABSTRACT FROM AUTHOR]

The economics literature emphasizes the importance of the elasticity of substitution between capital and labour in several economic contexts. However, analyses of the effect of the elasticity of substitution on the direction of technological change are often overlooked. Most assessments of the direction of technological change rely on a Constant Elasticity of Substitution (CES) production framework. This strand of empirical work considers the elasticity of substitution between capital and labour as a deep and fixed parameter. In this article, we show that the change in the elasticity of substitution that has occurred in recent decades might be an alternative source of change of factor income shares in addition to changes in factor-augmenting technological change. We construct a theoretical environment in which the elasticity of substitution is determined endogenously by the capital share and capital intensity. Rolling window estimates and non-linear estimation methods show that the elasticity of substitution in nine OECD economies observed between 1950 and 2017 was not constant and that, in fact, in the latter half of the 1970s, the elasticity of substitution increased, in the presence of labour-augmenting technical change. [ABSTRACT FROM AUTHOR]

This paper addresses the substitution elasticity of capital on the labour force in the context of the development of intellectualization. Given the substitution of capital for labour, China's benchmark listed logistics companies are compared with an American company to discuss the evolution of capital – labour substitution. A large-scale intellectualization process began in 2017, and based on a variable elasticity of substitution, this paper creates an econometric model of substitution elasticity between capital and labour and its evolution between 2017 and 2021. The American logistics company UPS maintains a relatively high level of substitution elasticity, and Chinese logistics companies are quickly catching up. The substitution elasticity of capital on labour in Chinese enterprises trends upward year after year. In 2021, the capital – labour substitution elasticity of logistics enterprises in both countries showed considerable growth. The calculation model of substitution elasticity presented in this paper can be extended to different regions and industries to measure intelligent development levels and the relationship between capital and the labour force. [ABSTRACT FROM AUTHOR]

The NEST or potential Emerging and growth-leading economies (EAGLEs) have been playing an increasing role in global growth, but the problems of their long-term growth attract the least attention, specifically the possibility of endogenous growth. The study was conducted to test for the endogenous growth possibility of the 15 NEST economies of the first wave. Based on macro data over 17 years, using the Bayesian non-linear regression method through the Metropolis–Hastings algorithm and Gibbs sampling, the author specified individual Constant elasticity of substitution (CES) functions for the researched economies. The Bayesian non-linear regressions are recognized as appropriate for empirical analysis of growth processes. The research revealed that out of the 15 studied NEST economies, the nine that have probably generated endogenous growth have acquired, on average, the higher magnitude of output growth, capital growth, FDI inflows, HDI, as well as expenditure on R&D. This is because these countries have implemented reasonable growth policies, such as encouraging investments from domestic and foreign companies, accumulating human capital, developing national R&D activities, extensively applying high technologies. Specifically, our findings are consistent with the predictions of Romer's endogenous growth theory. [ABSTRACT FROM AUTHOR]

The implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution. This study uses state level data to examine fossil fuel (coal and natural gas) substitution in electricity generation under increased availability of natural gas in the United States. We observe that changes in elasticities of substitution from pre-2009 to post-2009 differ across states suggesting that the effects of increased availability of inexpensive natural gas on electricity generation have been spatially heterogeneous. We rely on the observed heterogeneity to assess the effects of fossil fuel input substitution on technical efficiency and CO2 emissions. The results reveal that state level elasticity of substitution between natural gas and coal has a positive effect on technical efficiency and a negative effect on CO2 emissions. Therefore, future policy design and analyses should reflect the implications for regional elasticities of fossil fuel substitution and associated environmental outcomes. [ABSTRACT FROM AUTHOR]

We re-estimate the capital-labor elasticity of substitution and the biased factor-augmenting technological progress using a system approach for the aggregate U.S. economy from 1948 to 2010. Due to (i) the significant impacts of labor market dynamics on economic growth and (ii) the fundamental tension between the short-run data that are available and the long-run parameter that is required in the estimation process, we incorporate labor market friction into a supply-side system to re-estimate these important growth parameters and to explore their sensitivity to the incorporation of labor market friction. Our estimation obtains a significantly smaller-than-unity elasticity of substitution. This result is consistent with labor input measured along the extensive and intensive margin, and in both competitive and imperfect labor markets. Technological progress tends to be purely labor-augmenting, with the average growth rate around 2% per year. These findings are robust to alternatively constructed data sets and different estimation strategies. [ABSTRACT FROM AUTHOR]

This paper investigates a possibility of sustainable growth in a multi-output endogenous growth framework where the capital accumulation takes place mainly through the production of the dirty manufactured goods. It is shown that in a closed economy, economic growth is not environmentally sustainable, even under an optimal pollution tax unless the consumption elasticity of substitution between clean and dirty goods approaches infinity as in a small open economy which exports dirty goods. There exists a minimal threshold level of the ratio of clean to dirty capital that ensures sustainable growth in a closed economy. [ABSTRACT FROM AUTHOR]

Computable general equilibrium (CGE) models have been widely used to assess the economic impact of natural disasters, but the models have not been fully validated by applying them to real disasters. This study focuses on validating a model for use in a short-run case in which the functional recovery of infrastructure and businesses occurred on a time scale of a few months. A special attempt is made to determine the parameter values of elasticity of substitutions, which play an important role in the effect on supply chains. In this study, a spatial CGE model, in which Japan is divided into nine regions, is constructed and applied to the case of the 2011 Great East Japan Earthquake and Tsunami. Through this application, the best estimates of the elasticity parameters generated relatively consistent estimates of production change compared with the observed change, both in severely affected regions and in other regions. [ABSTRACT FROM AUTHOR]

In Appl. Econ. Lett. 18 (2011), 1777–1784, as a natural generalization of some famous production models with two inputs, C.A. Ioan and G. Ioan introduced a new class of production functions with constant return to scale, calledsum production function, and proved three theorems of characterization for such production models. In this article, we give new and more simple proofs of these theorems, extending also the results to the case of increased/decreased return to scale. The generalization to the case of an arbitrary number of inputs is also discussed. [ABSTRACT FROM PUBLISHER]

This article examines Thomas Piketty’s explanation of a falling wage share. Piketty explains rising income inequality between labor and capital as a result of one parameter of a production function: an elasticity of substitution, σ, between labor and capital greater than one. This article reviews Piketty’s elasticity argument, which relies on a non-standard definition of capital. In light of the theory of land rent, it discusses why the non-standard capital definition is a measure of wealth, not capital and is problematic for estimating elasticities. It then presents simple long-run estimates of σ in constant elasticity of substitution functions for Piketty’s data as well as for a subset of his capital measure that comes closer to the standard definition of productive capital. The estimation results cast doubt on Piketty’s hypothesis that σ is greater than one. [ABSTRACT FROM PUBLISHER]

This paper analyzes the effect of learning by doing (LBD) on the firm’s productivity growth and its input demand decisions. The results indicate that LBD is an important determinant of the firm’s productivity growth. The contribution of LBD to the firm’s productivity growth is about 5.6%. Another observation is that LBD has a decreasing effect on the firm’s cost of production – a finding which is consistent with the results of many studies. Also, an increase in LBD measured by cumulative production increases the firm’s demand for capital, and decreases the firm’s demand for labor. Lastly, LBD has a significant effect on the firm’s elasticity of scale. A fundamental message derived from the study is the confirmation that the firms should invest in more large capital equipment, embark on new processing techniques, and create an environment that is conducive to on-the-job learning. [ABSTRACT FROM PUBLISHER]

This article estimates the capital–energy Allen elasticities of substitution in China’s 28 provinces over the period 1995–2011. The central finding is that the capital–energy substitution elasticity in each province exhibits significant heterogeneity. The article empirically analyses the sources of the differences in the capital–energy substitution elasticity. The embodied technical change and market distortions are found to have significant effects on the degree of substitution elasticity. Further factor market reforms, liberalisation and cooperation would improve the elasticity of capital–energy substitution. [ABSTRACT FROM PUBLISHER]

In many economic models, theory restricts the shape of functions, such as monotonicity or curvature conditions. This article reviews and presents a framework for constrained estimation and inference to test for shape conditions in parametric models. We show that “regional” shape-restricting estimators have important advantages in terms of model fit and flexibility (as opposed to standard “local” or “global” shape-restricting estimators). In our empirical illustration, this is the first article to impose and test for all shape restrictions required by economic theory simultaneously in the “Berndt and Wood” data. We find that this dataset is consistent with “duality theory,” whereas previous studies have found violations of economic theory. We discuss policy consequences for key parameters, such as whether energy and capital are complements or substitutes. [ABSTRACT FROM PUBLISHER]

The aim of this paper is to investigate the roots of the stagnation in the Italian total factor productivity (TFP). The analysis focuses on the specific pattern of technical progress in determining the dynamics of the TFP. This analysis cannot be done with Cobb-Douglas technology, but requires the employment of a constant elasticity of substitution (CES) production function that allows distinguishing between the direction and the bias of technical progress. We employ a CES specification embodying both labor- and capital-augmenting technical change, with aσless than 1. We obtain three main results. (1) There seems to have been a structural break around the mid-1990s in the direction and bias of technological change; (2) The first half of the sample features a labor-augmenting technical change and a capital bias; and (3) In the second part of the sample, both these characteristics seem to disappear, and the evolution of factor endowments assumes a key role. This fact may be seen as one of the potential causes of the stagnation in Italian productivity. [ABSTRACT FROM AUTHOR]

For the past two decades, most immigrants who arrived in the advanced nations of the western world originated in less advanced countries of the third world. One of the main barriers to their economic integration, as viewed in the public circles of host nations, is the lack of recognition of their educational credentials based on which the suitability of using education as a signal of labour market success of immigrants can be questioned. Canada is a major immigrant-receiving country whose reliance on immigration to meet shortages of skilled labour has increased, especially in its smaller provinces and rural areas. Using a production function approach, this study explores the degree of substitutability of educational credentials of immigrant and native-born labour. It analyses customized data, based on 2001 Canadian census, for 256 census divisions. While immigrant workers in all educational groups are imperfect substitutes for native-born, those with a university degree are the weakest substitutes. However, the value of elasticity of substitution between immigrant and native-born workers is high in all cases, indicating that immigrants are easy to absorb in Canadian labour force regardless of their educational attainment. [ABSTRACT FROM AUTHOR]

This article introduces a supply-side perspective to the study of counterterrorism, where terrorists are viewed as combining terrorist attacks to achieve an aggregate output (e.g. social anxiety). With this novel approach, the elasticity of substitution, associated with the terrorists' production function, becomes a key determinant of the effectiveness of deterrence. If this elasticity is large, then countermeasures have very limited effectiveness when directed at a single mode of attack. If, in contrast, attack modes are complements, focused countermeasures can completely eliminate terrorists' gains. Counterterrorism measures are more effective when terrorist campaigns display little diversity of attacks. The article also identifies when proactive policies are more effective than defensive policies. The supply-side perspective gives a new pessimistic view to benevolence, which reduces the cost of nonterrorist activities. [ABSTRACT FROM AUTHOR]

This paper examines the effect of globalization accelerated by an expansion in trade and foreign direct investment (FDI) on the national labor demand under an open economy with underemployment. We find that the higher the elasticity of substitution, the flatter the tangent slope of the labor demand curve under a trade economy (without FDI). If the wage level at home is much higher than that in a foreign country, an increase in the elasticity of substitution decreases domestic employment. The beginning of FDI with international production relocation makes the tangent slope of the home labor demand curve flatter than that under a trade economy. If the home wage falls within the high (low) range, FDI decreases (increases) home employment. This result implies that, in agreement with the conventional wisdom, FDI does not necessarily lead to the hollowing out of employment in a high-wage country. [ABSTRACT FROM AUTHOR]

This study analyzes the impact of trade on wages in the context of the specific factor model by focusing on the link between trade and the average real wage. A recent paper by Jones & Ruffin (2008) shows how one can use the specific factor model to predict how labor should fare from an improvement in the terms of trade, an increase in the price of exportables relative to importables. For this purpose, I use annual firm-level data on the manufacturing sector in Tanzania during the period 1992 to 1998. I find that a ceteris paribus increase in the price of exportables may benefit labor in the food-beverage industry but hurt labor in the textile-garment, wood-furniture and metal-machinery industries. There are industries where the specific factor model predicts that exporting would help workers, but where the Stolper-Samuelson theorem of the Hecksher-Ohlin model predicts the reverse. [ABSTRACT FROM AUTHOR]

This paper estimates the elasticity of substitution ( s ) between military personnel and other military inputs, building on a study by Ridge and Smith published in 1991. The major difference is that this paper uses data on the average military wage, which Ridge and Smith did not, allowing a much more flexible specification of both the demand and supply equations. Accounting for a structural break at the end of the Cold War, it finds s likely to be some small positive number, much lower than previous estimates suggest. [ABSTRACT FROM AUTHOR]

Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model "small as stated by Hansen and Singleton or is its reciprocal----the intertemporal elasticity of substitution---small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case. [ABSTRACT FROM AUTHOR]

The Allen elasticity of substitution (AES) is widely used to study monetary-asset substitution and structural demand stability. Blackorby and Russell showed that the AES is uninformative and that the Morishima elasticity of substitution (MES) is the appropriate measure, a point overlooked in the monetary literature. Use of improper measures can lead to incorrect inferences This article considers five alternative measures of substitution—the AES, the MES. the Hicksian and Marshallian elasticities of demand, and Mundlak's unencountered, but appealing, constant-cost elasticity of substitution. Selection of the substitution measure appropriate to respective research questions is addressed. [ABSTRACT FROM AUTHOR]

A central issue in improving construction productivity is the flexibility in which capital and labour may be substituted. Empirical estimation using Singapore data suggests that the hypothesis of a unitary elasticity of substitution cannot be rejected, thereby providing justification for policy measures to alter the relative prices of factor inputs to encourage mechanisation in construction. The finding is consistent with an earlier study on the American construction industry as well as numerous production function studies conducted for other industries. [ABSTRACT FROM AUTHOR]