Definition
Constant Elasticity of Transformation (CET) function:
Where σ < 0 (ρ < -1)
Note: σ < 0 means that when one input's price increase, the consumption of another input will decrease, not increase.
α: output scaling parameter
β: shift parameter, or share parameter.
Note: β is called "share parameter" because with the benchmark value, β represents the share. However, when the value changes, β does not equal to share any more. So use these names with caution!
ρ: exponent
σ: elasticity of transformation
Property
CET is increasing in each of its argument, but is convex.
See also: