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Elasticity of complementarity

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Elasticity of complementarity (Hamermesh, 1993) is the percentage responsiveness of relative factor prices to a 1 percent change in relative inputs.

Mathematical definition

Given the production function f ( x 1 , x 2 ) then the elasticity of complementarity is defined as

c = d ln ( d f d x 1 / d f d x 2 ) d ln ( x 2 / x 1 ) = d ( d f d x 1 / d f d x 2 ) d f d x 1 / d f d x 2 d ( x 2 / x 1 ) x 2 / x 1 .

The inverse of elasticity of complementarity is elasticity of substitution.

References

Elasticity of complementarity Wikipedia