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Definition of CES Utility: CES utility stands for Constant Elasticity of Substitution utility, a kind of utility function. A synonym for CRRA or isoelastic utility function. Often written this way, presuming a constant g not equal to one:

u(c)=c^1-g/(1-g)

This limits to u(c)=ln(c) as g goes to one.

The elasticity of substitution between consumption at any two points in time is constant, equal to 1/g. "The elasticity of marginal utility is equal to" -g. g can also be said to be the coefficient of relative risk aversion, defined as -u"(c)c/u'(c), which is why this function is also called the CRRA (constant relative risk aversion) utility function. (Econterms)

Terms related to CES Utility:

• CES production function
• CES technology

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