Constant Elasticity of Substitution Production Function
Commonly referred to as a CES production function. A type of production function having the property that the ratio between proportionate changes and prices and proportionate changes in quantities is constant. In the case of two inputs, the form is:
Y = A[aKr + bLr](1/r),
Where Y is the output rate, A, a and b are constants; A is a variable broadly representing 'technology' and K and L are capital and labour services respectively. r is constant and is a measure of the substitutability of labour for capital services. The elasticity of substitution (s) is 1/(1 + r). Since r is constant, then so is s; hence the name. If r = 0 then the function becomes a Cobb-Douglas production function ands = 1.
- abbreviationCES Production Function
- synonymConstant Elasticity of Substitution Utility Function (written as constant elasticity of substitution production function)
- synonymConstant Elasticity of Substitution Welfare Function (written as constant elasticity of substitution production function)