Think Again: Higher Elasticity of Substitution Increases Economic Resilience

This paper shows that, counter-intuitively, a higher elasticity of substitution in model production function can lead to reduced economic resilience and larger vulnerability to shocks in production factor prices. This result is due to the fact that assuming a higher elasticity of substitution requires a recalibration of the production function parameters to keep the model initial state unchanged. This result has consequences for economic analysis, e.g., on the economic vulnerability to climate change.


Issue Date:
2009-10
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/54283
PURL Identifier:
http://purl.umn.edu/54283
Total Pages:
14
JEL Codes:
D24; E17; E23
Series Statement:
SD
66.2009




 Record created 2017-04-01, last modified 2018-01-22

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