Constant Elasticity of Substitution (CES) Production Function The CES production function, which allows for non-unitary elasticity of substitution, may be written as: V = [Aoe.
The model used by Docquier, Ozden, and Peri makes four key assumptions: that aggregate labor is combined with physical capital to produce output, that there is constant elasticity of substitution (CES) at a value ranging from 1.
It shows how a utility function with a modified constant elasticity of substitution functional form that exhibits first-order risk aversion can be used for the purpose.
Given the assumption of the VES production function (4), it follows that a test of the hypothesis that the production function has constant elasticity of substitution is obtained by a t-test on the least-squares estimator for the coefficient of the logarithm of the capital-labour ratio.
Furthermore, in this section we allow the final good's production technology to be of the constant elasticity of substitution (CES) variety and study how the assumed value for the elasticity of substitution between final and intermediate goods affects our results in the steady state.
Since we have four factor inputs the CD and the standard CES production functions will not be the appropriate technology because of their awkward properties of unitary and constant elasticity of substitution respectively.