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Gregor Semieniuk - One of the best experts on this subject based on the ideXlab platform.
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piketty s Elasticity of Substitution a critique
Review of Political Economy, 2017Co-Authors: Gregor SemieniukAbstract: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.
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Piketty’s Elasticity of Substitution: A Critique
Review of Political Economy, 2017Co-Authors: Gregor SemieniukAbstract: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.
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piketty s Elasticity of Substitution a critique
2014Co-Authors: Gregor SemieniukAbstract:This note examines Thomas Piketty's (2014) explanation and prediction of simultaneously rising capital income ratio and profit share by an Elasticity of Substitution, sigma, greater than one between labor and capital in an aggregate production function. I review Piketty's Elasticity argument, which relies on a non-standard capital definition. In light of the theory of land rent, I discuss why the non-standard capital definition is problematic for estimating elasticities. For lack of existing results, I make a simple estimate of sigma in the class of 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 capital definition. The estimation results cast doubt on Piketty's hypothesis of a sigma greater than one.
Daozhi Zeng - One of the best experts on this subject based on the ideXlab platform.
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mobile capital variable Elasticity of Substitution and trade liberalization
Journal of Economic Geography, 2018Co-Authors: Chingmu Chen, Daozhi ZengAbstract:This article investigates the impact of trade liberalization on trade patterns, firm markups, and firm locations in a two-factor monopolistic competition model that features variable Elasticity of Substitution by a general additively separable utility. We find that, depending on the relative export hurdles, either direction of one-way trade may occur when trade opens up. Its direction determines the responses of firm-level markups and various home market effects to falling trade costs. Our results show that some important findings in the literature are robust only with particular classes of preferences. We provide a possible rationale for some well-known conflicting empirical facts.
Maria Sebastia Barriel - One of the best experts on this subject based on the ideXlab platform.
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the Elasticity of Substitution evidence from a uk firm level data set
2008Co-Authors: Sebastian Barnes, Simon Price, Maria Sebastia BarrielAbstract:Using a panel of UK firms spanning three decades, we provide estimates of the long-run Elasticity of Substitution between capital and other factors of production, the (negative of the) Elasticity of capital and investment with respect to the user cost. The parameter is estimated using 'time averages' (with data differenced over long periods) and pooled mean group panel methods. The robust result is that the Elasticity is in the region of 0.4. This is consistent with previous results obtained using aggregate UK data, and is also in line with some recent results using US firm-level data. Estimated returns to scale exceed unity. When constant returns are imposed, the estimated Elasticity of Substitution is not substantially changed.
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working paper no 348 the Elasticity of Substitution evidence from a uk firm level data set
2008Co-Authors: Sebastian Barnes, Simon Price, Maria Sebastia BarrielAbstract:Using a panel of UK firms spanning three decades, we provide estimates of the long-run Elasticity of Substitution between capital and other factors of production, the (negative of the) Elasticity of capital and investment with respect to the user cost. The parameter is estimated using ‘time averages’ (with data differenced over long periods) and pooled mean group panel methods. The robust result is that the Elasticity is in the region of 0.4. This is consistent with previous results obtained using aggregate UK data, and is also in line with some recent results using US firm-level data. Estimated returns to scale exceed unity. When constant returns are imposed, the estimated Elasticity of Substitution is not substantially changed.
Manuel A. Gómez - One of the best experts on this subject based on the ideXlab platform.
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Variable Elasticity of Substitution and economic growth in the neoclassical model
Studies in Nonlinear Dynamics & Econometrics, 2020Co-Authors: Manuel A. GómezAbstract:AbstractWe study the effect of factor substitutability in the neoclassical growth model with variable Elasticity of Substitution. We consider two otherwise identical economies differing uniquely in their initial factor substitutability with Variable-Elasticity-of-Substitution (VES), Sobelow or Sigmoidal technologies. If the initial capital per capita is below its steady-state value, the economy with the higher initial Elasticity of Substitution will feature a higher steady-state income and capital per capita irrespective of whether the production technology is VES, Sobelow or Sigmoidal. Numerical results are provided to compare the effect of a higher Elasticity of Substitution in the Constant-Elasticity-of-Substitution (CES) model versus the models with variable-Elasticity-of-Substitution technology.
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Optimal size of the government: the role of the Elasticity of Substitution
Journal of Economics, 2012Co-Authors: Manuel A. GómezAbstract:This paper analyzes the optimal fiscal policy in an endogenous growth model with productive public services. Government expenditure, which may be subject to different degrees of congestion, is financed by distortionary income taxation. The standard result on the equality between the growth-maximizing, welfare-maximizing and first-best income tax rates holds if and only if production is Cobb–Douglas or there is proportional congestion. With non-proportional (or in the absence of) congestion, the first-best income tax is lower than the (second-best) welfare-maximizing income tax which, in turn, is lower than the growth-maximizing income tax if the Elasticity of Substitution is below unity. Under mild conditions these relations are reversed if the Elasticity of Substitution is above unity. Intuition on these results is also provided.
Chidambaran G Iyer - One of the best experts on this subject based on the ideXlab platform.
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Elasticity of Substitution & Returns to Scale in Indian Chemical Industry
The Indian Journal of Industrial Relations, 2011Co-Authors: Chidambaran G IyerAbstract:This paper examines whether there has been a change in. the Elasticity of Substitution and returns to scale in the Indian chemical industry due to the reforms introduced in 1991. The results reveal that reforms have helped the chemical industry in India adapt new technology which is more capital intensive. As a result, the Elasticity of Substitution as well as the returns to scale has changed in the post-reforms period from those in the pre-reforms period. Introduction Numerous papers have looked in to the impact of reforms on the efficiency and productivity of the Indian industry in the pre and post-reforms periods. The increased competition after reforms may have forced firms to improve their efficiency and or productivity, which the literature tried to capture. Productivity or efficiency changes can also happen if firms adopt better technologies of production. Since the Elasticity of Substitution and the returns to scale depend on the output and input mix, a change in technology should also affect the Elasticity of Substitution and the returns to scale. This paper intends to take a path, which not many papers have taken in the recent past. It tries to capture the change in technology by looking at Elasticity of Substitution and returns to scale and if there has been any change in them in the pre-reforms and the post-reforms period in the context of the Indian chemical industry. Literature Review & Methodology Important for any production function is the Elasticity of Substitution parameter. The popular Cobb-Douglas production assumes this to have a unitary value, while the Constant Elasticity of Substitution (CES) production function assumes the Elasticity of Substitution to be a constant. In addition, there have been studies that allow for variable Elasticity of Substitution (Revankar 1971). As in many industries, the optimum size of a firm is small in relation to the total market; economists have often assumed that there are constant returns to scale. However, there are industries where few firms control a large share of the total supply, hence these industries might have increasing returns to scale (Diwan 1966). In addition to the known constant, decreasing, and increasing returns to scale, the literature also has looked at production functions that allow variable returns to scale. For example, Zellner and Revankar (1969) in their paper introduced a generalized production function where the returns to scale function is a variable and satisfies a pre-assigned relationship to the output level. However, given the objective of this study, we compute the average value of the Elasticity of Substitution and the returns to scale during the pre-reforms period and the post-reforms period. Sankar's (1970) is the only study in literature that estimates the elasticities of Substitution and returns to scale in Indian manufacturing. The study uses the CES production function for 15 manufacturing industries in India, modified to allow for possible non-constant returns to scale. The estimate of Elasticity of Substitution obtained in the study exhibits considerable variation among industries, which suggests that a CES production function would be preferable in such studies. Hence in this study we will use the CES production function. Following Diwan (1966), the CES function for non-constant returns to scale can be written as Q = A [[[delta][K.sup.-[rho]] + (1-[delta]) [L.sub.-[rho]].sup.-v/[rho]] [e.sup.[lambda]t]. (1) Here v is the parameter reflecting returns to scale while [rho] is the parameter of Substitution which is related to Elasticity of Substitution by [sigma] = 1 / (1+[rho]). (2) Estimating a CES production function is essentially a two step process, where one or two parameters are estimated from another function and their values are plugged into the CES function to estimate the other parameters. We follow Knox Lovell (1973) for the estimation of the CES function. …
