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Aggregate Substitutabilities between Factor Demands

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  • Edmond Malinvaud

    (Crest)

Abstract

Answers to various questions of applied macroeconomics depend on the values given toelasticities of substitution between the demands for factors, these demands being aggregatedacross productive sectors. Such elasticities reflect not only substitutabilities within productiveprocesses, but also substitutabilities in the system of demand functions for goods. The lattersubstitutabilities show how demand for goods react to changes in relative prices of goods,which are themselves induced by changes in factor prices. A fairly general model leads to arelationship directly linking changes in factor prices to changes in the aggregate demands forthese factors. The relation is applied to particular specifications : first, to a simple CESeconomy and, second, to a nested-CES economy with three factors, a case which points todifficulties for the establishment of general transparent properties. A full treatment is,however, provided for the case of two factors only, which may be further specified. Thus, themodel exhibited here lends itself to studies about how, at the aggregate level, factorsubstitutabilities depend not only on the forms of production functions and demand functionsfor goods, but also on heterogeneity across the set of parameters characterizing thesefunctions.

Suggested Citation

  • Edmond Malinvaud, 2005. "Aggregate Substitutabilities between Factor Demands," Working Papers 2005-07, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2005-07
    as

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    References listed on IDEAS

    as
    1. Edmond Malinvaud, 2002. "Sur l'agrégation des demandes de travail non-qualifié," Annals of Economics and Statistics, GENES, issue 66, pages 41-80.
    2. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    3. repec:adr:anecst:y:2005:i:77:p:08 is not listed on IDEAS
    4. Edmond Malinvaud, 2005. "Substituabilités entre demandes de facteurs induites par les demandes de biens," Annals of Economics and Statistics, GENES, issue 77, pages 109-132.
    5. repec:adr:anecst:y:2002:i:66:p:04 is not listed on IDEAS
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