Elasticity of complementarity

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

$c=\frac{d\ln (\frac{df}{d{x}_1}/\frac{df}{d{x}_2})}{d\ln (x_2/x_1)}=\frac{\frac{d(\frac{df}{d{x}_1}/\frac{df}{d{x}_2})}{\frac{df}{d{x}_1}/\frac{df}{d{x}_2}}}{\frac{d(x_2/x_1)}{x_2/x_1}}.$

The inverse of elasticity of complementarity is elasticity of substitution.

References

• Hamermesh, Daniel S., Labor Demand, Princeton University Press, Princeton NJ, 1993, Template:ISBN