The elasticity of derived demand, factor substitution, and product demand: Corrections to Hicks' formula and Marshall's Four Rules

Bob Chirinko and Debdulal Mallick

Labour Economics, 2011, vol. 18, issue 5, 708-711

Abstract: The concept of the elasticity of substitution between capital and labor, introduced by John Hicks and Joan Robinson over 75Â years ago, has had important implications in labor economics and several areas of economic inquiry. In his The Theory of Wages (1932/1963), Hicks developed a formula that has proven very useful in relating the substitution elasticity to the derived demand for productive factors, the distribution of factor incomes, and Marshall's Four Rules. This short paper shows that the original and subsequent derivations of Hicks' celebrated formula contained a slip (that factor shares are independent of the substitution elasticity and therefore constant), presents a new derivation and a corrected formula, and demonstrates that, with the corrected formula, Marshall's First Rule based on the substitution elasticity is no longer generally valid.

Keywords: Derived; demand; Substitution; elasticity; Hicks'; formula; Marshall's; Four; Rules (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927537111000303
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Elasticity of Derived Demand, Factor Substitution and Product Demand: Corrections to Hicks’ Formula and Marshall’s Four Rules (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:18:y:2011:i:5:p:708-711

Access Statistics for this article

Labour Economics is currently edited by A. Ichino

More articles in Labour Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().