Derivation of the Hicks Elasticity of Substitution from the Input Distance Function

David I. Stern ()

MPRA Paper from University Library of Munich, Germany

Abstract: The Hicks or direct elasticity of substitution is traditionally derived from the production function. This paper exploits duality theory to present a more general derivation from the input distance function, which is exactly dual to the Shadow Elasticity of Substitution. The new elasticity is more general than the traditional one as it can handle situations of technical inefficiency, nonseparability between inputs and outputs, and multiple outputs, but is equal to the traditional elasticity under the classical conditions. The new derivation is related to the Morishima and Antonelli Elasticities of Complementarity in the same way that the Shadow Elasticity of Substitution is related to the Morishima and Allen-Uzawa Elasticities of Substitution. Furthermore, distance (technical efficiency) is not constant for the Morishima and Antonelli Elasticities of Complementarity

Keywords: Microeconomics; production; substitution (search for similar items in EconPapers)
JEL-codes: D21 B21 D24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff
Date: Written
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