Elasticity of substitution — a short refresher

16 Jun, 2014 at 16:05 | Posted in Economics | Comments Off on Elasticity of substitution — a short refresher

Thomas Piketty argues in Capital in the Twenty-First Century that capital’s share of income will probably continue to rise in the future. In the neoclassical production and growth models that he refers to, as capital goes on accumulating, diminishing returns on capital isn’t strong enough to stop net capital incomes from expanding. In model terms, this means that the elasticity of substitution between capital and labor is greater than one. Since the reasoning may not be totally transparent to all interested, this short video may be of some assistance …

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