Think Again: Higher Elasticity of Substitution Increases Economic Resilience

Patrice Dumas and Stephane Hallegatte

No 2009.66, Working Papers from Fondazione Eni Enrico Mattei

Abstract: 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.

Keywords: Substitution; Calibration; Constant Elasticity of Substitution; Shock (search for similar items in EconPapers)
JEL-codes: D24 E17 E23 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-bec, nep-ene and nep-env
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Working Paper: Think Again: Higher Elasticity of Substitution Increases Economic Resilience (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2009.66

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