A note on the estimation of the elasticity of the marginal utility of consumption |
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Authors: | Michael Hoel |
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Affiliation: | University of Oslo, Institute of Economics, Blindern (Oslo, Norway |
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Abstract: | In dynamic optimization problems one often needs an estimation of ‘the elasticity of the marginal utility of consumption’. Sometimes a variable found through calculation of demand elasticities is used for the required elasticity. This note shows that this method usually gives a wrong value of the desired elasticity, so that this method should be avoided if possible. In the end of the note an example is given showing that this mistake is not unimportant. |
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