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) Am Econ Rev 79: 882–888]. 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.
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Acknowledgment
We thank Paolo Bertoletti for drawing our attention to the issue addressed in this paper and for his comments on an earlier draft.
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We thank Paolo Bertoletti for drawing our attention to the issue addressed in this paper and for his comments on an earlier draft.
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Blackorby, C., Primont, D. & Russell, R.R. The Morishima gross elasticity of substitution. J Prod Anal 28, 203–208 (2007). https://doi.org/10.1007/s11123-007-0053-7
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DOI: https://doi.org/10.1007/s11123-007-0053-7