 Constant elasticity of substitution (CES) is a

property of production functions and

utility functions

 It refers to a particular type of aggregator

function which combines two or more types of
consumption, or two or more types of productive
inputs into an aggregate quantity.
• The CES production function is a type of
production function that displays constant
elasticity of substitution.

• The production technology has a constant

percentage change in factor (e.g. labor and
capital) proportions due to a percentage change in
marginal rate of technical substitution.
Where
• Q = Output
• F = Factor productivity
• a = Share parameter
• K, L = Primary production factors (Capital and
Labor)
• r=s–1/s
• s = 1/ 1-r = Elasticity of substitution