estimating elasticities of substitution with nested ces production functions where do we stand 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

privatization deregulation and capital accumulation author affiliation gerhard glomm department of economics indiana university wylie hall room 105 bloomington in 47405 usa gglomm indiana edufabio mendez department of economics walton college of business room 402 university of arkansas fayetteville ar 72701 usa fmendez uark edu corresponding author acknowledgment we are grateful to b ravikumar rowena pecchenino jeffrey wooldridge felix rioja stefan krause and seminar participants from the economics department at emory university for useful observations we are also grateful to cristian opazo and javier reyes for their assistance and to the editor and two anonymous referees for helpful comments 1 introductionsince the early 1980s many countries have privatized and deregulated intermediate goods industries such as gas electricity or telecommunications that had traditionally been run by public monopolies the european union eu for example has adopted aggressive policies toward the elimination of monopolies in the telecommunication market and conducted a general privatization program whose sales receipts amounted to more than 3 of gdp between 1985 and 1995 constantinou and lagoudakis 1996 parker 1998 in other regions of the world countries like australia chile brazil argentina and the united states have implemented similar policies vickers and yarrow 1991 winston 1993 van der vlies 1996 while there is a large literature studying the microeconomic effects of privatization and deregulation the long run macroeconomic effects of such types of reforms have been subject to relatively less scrutiny in this paper we use a model of capital accumulation in order to investigate the long run effects of privatization and deregulation this paper complements a small literature that includes parente and prescott 1999 2000 schmitz 2001 and herrendorf and teixeira 2004 parente and prescott 1999 2000 and herrendorf and teixeira 2004 study the impact of monopoly rights on long run levels of income and find that the effect is large the latter authors find for example that monopoly rights can reduce aggregate income in the long run by a factor of seven schmitz 2001 uses a two sector model to calculate the impact of government production of investment goods on long run levels of labor productivity he finds that government production can lower labor productivity levels in the long run by about 30 our approach differs from herrendorf and teixeira 2004 who infer the extent of monopoly power from differentials in the relative prices of nontradeables instead we take the approach that monopoly power is likely to arise and exist in the public production of intermediate goods such as public utilities or telecommunication and that the size of these sectors relative to the rest of the economy can be directly estimated see world bank 1995 our approach also differs from schmitz 2001 in a fundamental way because he abstracts completely from the issue of monopoly rights in his model the only difference between the public and private production is that the government is endowed with a less productive technology than the private sector the long run income gains from privatization and deregulation in our paper are similar in magnitude to those found in schmitz 2001 in our base case calculation the long run income gain of changing from a public sector monopoly to a competitive market with private firms is 18 these welfare gains can be larger when there has been relatively low governmental investment in the public sector capital and when the elasticity of substitution between the intermediate input and physical capital is small like schmitz 2001 we view our results as less pertinent for rich economies like the united states where public sector involvement in intermediate good production is relatively small rather we view the results of our model as being applicable mostly to least developed countries ldcs such as egypt where governments typically play a large role in intermediate goods production

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

a reexamination of the role of thermodynamics for environmental economics abstract as the discussion about the role of thermodynamics in environmental economics has not led to a conclusion yet a more fundamental approach seems to be necessary which also takes into consideration the relationship between economics and the natural sciences in general to this end value theory is chosen as a starting point because it is the centerpiece of every economic theory it is shown that neoclassical environmental economics suffers from serious deficiencies because of its value concept heedlessly copied from classical mechanics thermodynamics can be expected to be helpful to redress these defects because the economy can be thought of as a dissipative structure dependent on its environment the obvious way to integrate thermodynamics consists in the formulation of thermodynamic constraints to complement neoclassical environmental economics but this approach remains unsatisfactory because the neoclassical mechanical hardcore is incompatible with the entropy law and its implications evidently the neoclassical paradigm and its value concept have to be given up but the alternative of the energy theory of value must be rejected because its determinism cannot be reconciled with the richness of human behaviour as thermodynamic analogies offer no solution either there is a dilemma between the necessity and the apparent impossibility of adequately integrating thermodynamic concepts it turns out that a normative inconsistency is responsible which is due to the demand for intergenerational justice therefore the integration of thermodynamics into environmental economics hinges on a meta economic value decision if sustainability is adopted as the guiding principle the insights of thermodynamics call for a macro economic environmental policy setting absolute limits to the economy but this macro policy is incompatible with neoclassical economics so that a social reconstruction of economics based on a social theory of value becomes necessary in sum thermodynamics is important for environmental economics besides fulfilling a general heuristic function it also fulfils a decisive conceptual and an analytical function insofar as it helps to justify sustainability and to operationalize macro economic environmental policy

path dependency and input substitution implications for energy policy modelling in most policy oriented energy models the effectiveness of energy policy instruments crucially depends both on the values of the substitution elasticities between the various inputs and on the rates of technological progress in this paper we argue that due to the fixed cost nature of adjustments to relative price changes these technological parameters are affected by past developments failing to account for the role of history will result in biased parameter estimates and hence the implication for energy policy modelling is that the estimation period should be carefully selected we provide an empirical illustration using data for the netherlands

fossil fuel subsidy reforms and their impacts on firms abstract while the potential adverse effects of fossil fuel subsidy reform are well documented for households the literature has largely ignored the effect of subsidy reform on firms competitiveness this paper discusses how firms are affected by and respond to energy price increases caused by subsidy reforms it highlights that cost increases both direct and indirect do not necessarily reflect competitiveness losses since firms have various ways to mitigate and pass on price shocks this paper presents and discusses direct and indirect transmission channels for price shocks and firms response measures absorbing cost shocks into profits inter fuel substitution increasing energy and material efficiency and passing on price increases it argues that further micro econometric studies using enterprise surveys are essential for quantifying the role of these mechanisms and for designing policy measures that ensure that competitiveness losses due to subsidy reforms are minimised

how substitutable is natural capital one of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital this issue was raised early on in the debate on sustainability by pearce and has never really been resolved this paper is an empirical attempt to measure the degree of substitutability between different forms of capital a nested ces production function is used to allow flexibility in the estimated elasticities of substitution also within this specification natural resources and other inputs are combined in different levels of the function thus allowing for different levels of substitutability institutional and economic indicators are also incorporated in the production function estimated results show that the elasticities derived from functions involving land resources were generally around one or greater implying a fairly high degree of substitutability furthermore changes in trade openness and private sector investment have a statistically significant and direct relationship on the efficiency of production and hence on income generation no statistically significant relationship between income and any of the institutional indicators was found

production functions for climate policy modeling an empirical analysis abstract quantitative models for climate policy modeling differ in the production structure used and in the sizes of the elasticities of substitution the empirical foundation for both is generally lacking this paper estimates the parameters of 2 level ces production functions with capital labour and energy as inputs and is the first to systematically compare all nesting structures using industry level data from 12 oecd countries we find that the nesting structure where capital and labour are combined first fits the data best but for most countries and industries we cannot reject that all three inputs can be put into one single nest these two nesting structures are used by most climate models however while several climate policy models use a cobb douglas function for part of the production function we reject elasticities equal to one in favour of considerably smaller values finally we find evidence for factor specific technological change with lower elasticities and with factor specific technological change some climate policy models may find a bigger effect of endogenous technological change on mitigating the costs of climate policy

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

capital energy substitution and the multi level ces production function abstract this paper has clarified a misconception in sato s multi level ces production function and used the function in testing for capital energy substitution in taiwanese manufacturing the empirical results show that capital and energy are substitutes and the aes estimates differ little from those derived from the translog approximation

a nested ces approach to capital energy substitution abstract this paper uses the nested constant elasticity of substitution ces production function to estimate elasticities of substitution between capital labour energy and materials over the 1971 1976 period around the initial energy crisis elasticities are estimated for each of the two digit sic industries within us manufacturing using more disaggregate four digit sic data the nested ces function makes it possible to distinguish between engineering and economic elasticities of substitution capital and energy are estimated to be slight engineering substitutes and economic complements labour energy and materials are estimated economic substitutes

structural optimization and carbon taxation in china s commercial sector abstract given china s economic transformation and upgrading process the green development of commercial sector is more and more important based on the trans log cost function this paper calculates the inter factor and inter fuel substitution effects in china s commercial sector from 1980 to 2016 besides the paper further analyzes the driving factors of the dynamic changes in energy intensity and the impact of carbon taxation in china s commercial sector the main conclusions are as follows 1 capital labor and energy in china s commercial sector negatively correlate with their prices and the self price elasticities of energy labor and capital decline in turn 2 the relationship between labor and capital is substitutional and the same relationship is found when after considering labor and energy and that between energy and capital is complementary 3 demand for energy sources negatively correlates with their prices and there exist complementary relationships between energy sources 4 technical effects and substitution effects can effectively promote the decline of energy intensity in china s commercial sector 5 implementing a 50 rmb tonne carbon taxation will lead to 5 50 energy savings and 6 21 co2 reduction

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

competitive pricing and efficiency in search equilibrium we consolidate and generalize some results on price determination and efficiency in search equilibrium extending models by rubinstein and wolinsky and by gale heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition when the discount rate r and search costs converge to 0 we show that prices in all exchanges are the same and equal the competitive market clearing price given positive search costs efficiency obtains iff bargaining satisfies hosios condition and r 0 when prices are set by third party market makers however we show that search equilibrium is necessarily efficient

can money flows predict stock returns money flow is defined as the difference between uptick and downtick dollar trading volume despite little published research regarding its usefulness the measure has become an increasingly popular technical indicator our analysis demonstrates that money flows are highly correlated with same period returns we also found strong evidence of money flow momentum in that lagged money flows can be used to predict future money flows most important is our finding that money flows appear to predict cross sectional variation in future returns their predictive ability is sensitive however to the method of money flow measurement e g the exclusion or inclusion of block trades and the forecast horizon

estimated substitution elasticities of a nested ces production function approach for germany this paper demonstrates an econometric estimation of substitution elasticities of a nested constant elasticity of substitution production function ces between capital energy and labour for the west german industry in the last few years ces production functions have become more important in economic modelling especially for applied general equilibrium models where ces production functions are an important building stone in the literature different results of estimated elasticities can be found this paper investigates three different approaches for nested ces production functions and their estimated substitution elasticities capital energy and labour are estimated as substitutes for the west german industry in the long run

capital stock labor energy substitution and production efficiency study for china abstract this study estimates the elasticities of substitution for china from 1953 to 2006 by the two level constant elasticity of substitution ces production function with three factor inputs capital stock labor and energy a technological change rate and non constant returns to scale are under considered all possible combinations and two other subdivided periods are carried out respectively and their technological change rates elasticities of substitution and returns to scale are found this study also provides an analysis of production efficiency by using marginal productivity of specific factor input according to the estimated results and distinguishes the marginal productivities deriving from the three different combinations it suggests that the decision makers of china need to consider the effects of different factor inputs on gdp growth

energy conservation in electricity generation a case study of the electricity and water industry in kuwait this paper has examined possibilities of energy conservation in the generation of electricity and water in kuwait this has been done through analysing the underlying production structure by employing a translog flexible cost function and using series data the results show that in the absence of changes in factor prices fuel intensity of electricity and water is expected to increase with increase in output furthermore capital and fuel are found to be substitutes overall the evidence suggests that energy conservation can be achieved by using fuel prices as instruments this is likely to induce demand for new capital and hence promote productivity gains

economic performance of flexible functional forms flexible functional forms are well behaved over restricted regions the outer domain and constitute good approximations of a hypothetical true technology set of preferences over only a subregion of the outer domain the inner domain comparison of such forms has been made in terms of outer domain ideally il should also cover the inner domain by definition however the inner domain is unquantifiable instead functions representing producer technology consumer preferences can be characterized and compared in terms of what we call in this paper economic performance focusing on the producer side we demonstrate that relative differences and associated implications for equilibrium modeling can be substantial

the impact of increased efficiency in the industrial use of energy a computable general equilibrium analysis for the united kingdom the conventional wisdom is that improving energy efficiency will lower energy use however there is an extensive debate in the energy economics policy literature concerning rebound effects these occur because an improvement in energy efficiency produces a fall in the effective price of energy services the response of the economic system to this price fall at least partially offsets the expected beneficial impact of the energy efficiency gain in this paper we use an economy energy environment computable general equilibrium cge model for the uk to measure the impact of a 5 across the board improvement in the efficiency of energy use in all production sectors we identify rebound effects of the order of 30 50 but no backfire no increase in energy use however these results are sensitive to the assumed structure of the labour market key production elasticities the time period under consideration and the mechanism through which increased government revenues are recycled back to the economy

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

asymmetric substitutability between energy and capital evidence from the manufacturing sectors in 10 oecd countries abstract this paper investigates the substitutability between energy and capital in the manufacturing sectors of ten oecd countries since 1980 by applying a cost function approach that has been widely used to analyze industrial energy demand first we attempt to determine the source of the disagreement in the literature on the substitutability between energy and capital and reach a conclusion regarding the substitutability between energy and capital dividing energy and capital into sub inputs we analyze their substitutability the empirical results indicate that fuel tends to complement capital in most countries whereas electricity and capital are substitutes thus this study confirms that heterogeneity in energy sources is a primary component of the systematic variation in the substitutability between energy and capital second we examine asymmetric substitutability between energy and capital by estimating the morishima elasticity of substitution the estimates of the morishima elasticity of substitution demonstrate that the substitution of energy for capital has dominated the substitution of capital for energy this asymmetric substitutability is natural from the producer perspective because capital costs are much greater than energy costs in most countries these results imply that the adoption of energy saving technologies has not been induced in response to increased energy prices