Estimating elasticities of substitution with nested CES production functions: Where do we stand?

Elena Lagomarsino

Research output: Contribution to journalArticle

Abstract

Prompt by an increasing interest by climate change modelers, a rich literature estimating elasticities of substitution in a nested CES production framework has recently developed. This article reviews such literature. We critically describe the nesting structures, estimation approaches, data sources and aggregation, econometric techniques, and types of substitution elasticities used by previous literature, to offer a comprehensive description of the various options available to a researcher attempting this estimation. We also provide suggestions for potential improvements to the estimation process. In particular, we warn researchers to use CES production functions with caution in empirical applications given their restrictive build-in assumptions.
Original languageEnglish
Article number104752
JournalEnergy Economics
Volume88
Early online date8 May 2020
DOIs
Publication statusPublished - May 2020

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