Constant Elasticity of Substitution

Bruce C. Dieffenbach ()
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Bruce C. Dieffenbach: Independent author

Chapter 18 in Conjugate Duality in Economic Analysis, 2026, pp 131-138 from Springer

Abstract: Abstract We study constant-returns-to-scale production functions having constant elasticity of substitution 0≤s≤∞ between any two inputs. We calculate the cost function, the minimum cost of producing output one, for given input prices. The elasticity s is the percentage decrease in an input relative to other inputs when its relative price rises by one per cent. Solving the dual of a Karush-Kuhn-Tucker problem obtains the cost function. The cost function resembles the production function: it has the same constant elasticity of substitution functional form, but with the elasticity of substitution inverted. When the elasticity of substitution is high, then a small change in the input price causes a strong substitution of one input for another, but the change in cost is small.

Date: 2026
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DOI: 10.1007/978-3-032-21396-9_18

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