Think Again: Higher Elasticity of Substitution Increases Economic Resilience

Authors

P. Dumas, Centre International de Recherche sur l’Environnement et le Développement (CIRED)Follow
S. Hallegatte, Ecole Nationale de la Météorologie, Météo-France and CIRED

Date of This Version

September 2009

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.

Recommended Citation

Dumas, P. and Hallegatte, S., "Think Again: Higher Elasticity of Substitution Increases Economic Resilience" (September 16, 2009). Fondazione Eni Enrico Mattei Working Papers. Paper 327.
https://services.bepress.com/feem/paper327