Revisiting, from a Frischian point of view, the relationship between elasticities of intratemporal and intertemporal substitution
Abstract: How are substitution in the spatial and in the temporal
sense connected? Can estimates based on data with spatial variation be
transmitted into values appropriate for exploring temporal variation, and
vice versa? This paper, building on, inter alia, Frisch (1959), attempts to
give some clarifications and provides elements of a synthesis. The income
elasticity of the marginal utility of income, whose inverse is often called
the ‘Frisch parameter’, and its multi-period counterpart, the wealth
elasticity of the marginal utility of wealth, are key concepts. Three cases
with additive preferences are discussed, and in that context the role of
the (generalized) ‘Frisch parameter’ as an overall measure of substitution
across commodities and over time is reconsidered.
Keywords: Frisch elasticity; Frisch demand; Intertemporal substitution; Additive preferences; Marginal utility of Income; Marginal utility of wealth; (follow links to similar papers)
JEL-Codes: D11; D12; D91; (follow links to similar papers)
26 pages, July 3, 2017
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