CES Function



  • A function with constant elasticity of substitution. CES is popular for both production and utility functions. Used extensively in New Trade Theory as the Dixit-Stiglitz utility function for differentiated productsunder monopolistic competition. With arguments X = (X1,...,Xn), the function is F(X) = A[SiaiXir]1/r, where ai, A are positive constants and s = 1/(1-r) is the elasticity of substitution. Due to Arrow et al. (1961).