Elasticities of Substitution and Complementarity

Finally, my article in the Journal of Productivity Analysis has received page numbers. The full citation is:Stern D. I. (2011) Elasticities of substitution and complementarity, Journal of Productivity Analysis 36(1): 79-89.The article is mainly a review/survey article that organizes the literature on elasticities of substitution. It also proposes a couple of innovations along the way and gives

"Elasticities of Substitution and Complementarity" to be published in Journal of Productivity Analysis

My paper Elasticities of Substitution and Complementarity has been accepted by the Journal of Productivity Analysis. The paper surveys the various definitions of the "elasticity of substitution" and puts them into a framework that explains their relationships and purposes. It includes the new definition of Hicks Elasticity of Substitution based on the input distance function as well as

Index Numbers and Consistency in Aggregation: Part II

This post gets even more technical than the last. I'm just blogging about what I'm reading in the course of my research. I read a whole bunch more papers on index numbers, which got more and more technical. The bottom line is that for most applications the chain Fisher index is an appropriate index to use. An index is superlative if it is exact for an aggregator function (e.g. a production

Index Numbers and Consistency in Aggregation: Part I

There are many formulae for the index numbers used to compute price and quantity indices, such as a consumer price index or a volume index of imports, in economics. The Laspeyres, Paasche, Divisia, and Fisher indices are the best known of these formulae. A body of theory examines the criteria that can be used to decide which formula to use in a particular application. One important property is

Interfuel Substitution: A Meta-Analysis - Accepted for Publication

My paper on the meta-analysis of interfuel substitution has been accepted for publication at the Journal of Economic Surveys (an A-rated journal).

Paper Accepted at Economics Letters

My paper Derivation of the Hicks, or Direct, Elasticity of Substitution from the Input Distance Function has been accepted for publication at Economics Letters. As I've mentioned before, the elasticity of substitution measures the difficulty of replacing one input to production such as energy with another such as capital, usually under the assumption that the level of output must be kept constant

Substitutability of Energy and Capital

There is a large empirical literature on the issue of whether capital and energy are substitutes or complements and on how substitutable they are (e.g. Berndt and Wood, 1979; Apostolakis, 1990; Thompson and Taylor, 1995; Frondel and Schmidt, 2002; Thompson, 1997; Stern, 2007; Koetse et al., 2008). Substitutability can be measured using the Hicks or direct elasticity of substitution, which

Revise and Resubmit

I got a "revise and resubmit" for the paper I submitted to Journal of Productivity Analysis. There are of course no guarantees in these situations that you will be published and "major revisions" have been requested but that is still good news.

Estimating a Two-Equation Model of the Swedish Economy

My coauthor sent me some Swedish capital stock estimates for 1850-2000 which allows me to estimate the production function equation that explains economic output in terms of labor, capital and energy in addition to the energy cost ratio equation I estimated on its own before. Having two equations which share many of the same parameters makes estimating those parameters accurately a lot easier. I

The Declining Relative Value of Energy

One of the little known facts of energy economics is that in the long-run data that we have available the value of energy relative to the value of output has fallen over time. The chart shows the data for Sweden. Output here is gross output. Relative to GDP the ratio was 1:1 or above in the early 19th century. That fact seems to rule out structural change as an explanation of the trend.

Journal of Economic Surveys

After a lightning fast review and rejection (one very useful referee report and one unuseful referee report) of my paper on meta-analysis of interfuel substitution at Energy Economics I'm resubmitting it to the Journal of Economic Surveys. One of the editors is a coauthor of two of the (better) studies in my meta-analysis and I noticed that Tom Stanley is on the editorial board. I've revised the

What Do the Mitigation Policy Models Assume about Interfuel Substitution? And is it Important?

In my previous blogpost I commented that the elasticity of substitutions between fuels and between energy and capital were likely to be very important in estimates of the costs of emissions reduction policies. I've been trying to find support for, or evidence against, this hypothesis.Bhattacharya (1996) writes: "It is generally agreed that the elasticity values are the single most important

Interfuel Substitution and the Costs of Climate Change Policy

A meta-analysis is an analysis of existing empirical studies rather than another original primary study. The aim of a meta-analysis is to find out what is the average size of some parameter or effect in the existing literature - for example the average estimated damage from climate change or the elasticity of demand for gasoline - and what are the factors that cause there to be differences