Journal
ENERGY ECONOMICS
Volume 88, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.eneco.2020.104752
Keywords
KLEM production functions; Substitution elasticities; Energy and capital substitution estimation; Nested CES
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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 artide 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. (C) 2020 Elsevier B.V. All rights reserved.
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