CES Utility Function
See also: Isoelastic utilityThe 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
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