Think Again: Higher Elasticity of Substitution Increases Economic Resilience
Data
01.01.2009
01.01.2009
Autori
P. Dumas, S. Hallegatte
Codice JEL
D24,E17,E23
D24,E17,E23
Parole chiave:
Substitution,Calibration,Constant Elasticity of Substitution,Shock
Substitution,Calibration,Constant Elasticity of Substitution,Shock
Publisher
Economy and Society
Economy and Society
Editor
Carlo Carraro
Carlo Carraro
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.