Constant Elasticity of Substitution - CES Utility Function

CES Utility Function

See also: Isoelastic utility

The same functional form arises as a utility function in consumer theory. For example, if there exist types of consumption goods, then aggregate consumption could be defined using the CES aggregator:

Here again, the coefficients are share parameters, and is the elasticity of substitution. Therefore the consumption goods are perfect substitutes when approaches infinity and perfect complements when approaches zero. The CES aggregator is also sometimes called the Armington aggregator, which was discussed by Armington (1969).

A CES utility function is one of the cases considered by Avinash Dixit and Joseph Stiglitz in their study of optimal product diversity in a context of monopolistic competition.

Read more about this topic:  Constant Elasticity Of Substitution

Famous quotes containing the words ces, utility and/or function:

    “Le silence éternel de ces espaces infinis m’effraie. The eternal silence of these infinite spaces frightens me.”
    —Blaise Pascal (1623–1662)

    “Moral sensibilities are nowadays at such cross-purposes that to one man a morality is proved by its utility, while to another its utility refutes it.”
    —Friedrich Nietzsche (1844–1900)

    “The art of living is to function in society without doing violence to one’s own needs or to the needs of others. The art of mothering is to teach the art of living to children.”
    —Elaine Heffner (20th century)