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Econometric Estimation of the “Constant Elasticity of Substitution" Function in R: Package micEconCES

Author

Listed:
  • Arne Henningsen

    (Institute of Food and Resource Economics, University of Copenhagen)

  • Géraldine Henningsen

    (Risø National Laboratory for Sustainable Energy, Technical University of Denmark)

Abstract

The Constant Elasticity of Substitution (CES) function is popular in several areas of economics, but it is rarely used in econometric analysis because it cannot be estimated by standard linear regression techniques. We discuss several existing approaches and propose a new grid-search approach for estimating the traditional CES function with two inputs as well as nested CES functions with three and four inputs. Furthermore, we demonstrate how these approaches can be applied in R using the add-on package micEconCES and we describe how the various estimation approaches are implemented in the micEconCES package. Finally, we illustrate the usage of this package by replicating some estimations of CES functions that are reported in the literature.

Suggested Citation

  • Arne Henningsen & Géraldine Henningsen, 2011. "Econometric Estimation of the “Constant Elasticity of Substitution" Function in R: Package micEconCES," IFRO Working Paper 2011/9, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2011_9
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    References listed on IDEAS

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    More about this item

    Keywords

    constant elasticity of substitution; CES; nested CES; R;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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