Estimating elasticity of substitution between energy and other inputs for Iran using a multi-stage CES production function

The main goal of this paper is to estimate the elasticity of substitution between energy and other factors of production by using a multi-stage CES production function. In order to achieve this goal، we design a nested CES production function with four inputs، labor، capital، energy and investment in research and development for Iranian economy. This nonlinear production function is estimated by continuous genetic algorithms method. This method is relatively more efficient than traditional econometrics approach. In the first stage، three different functions are estimated and the best one is selected. In the next stage، we have calculated the elasticity of substitution between energy and other inputs of production. Our choice of nonlinear production function، the explanatory variables، and also the estimation method make this research different from those already done for Iran. The results indicate that one percent increase in labor force reduces energy consumption by 0. 56 percent. We also find that one percent increase in physical capital decreases energy use by 0. 59 percent، and similarly one percent increase in investment in R&D (Research and Development) might reduce energy consumption by 0. 46 percent. Furthermore، we calculate marginal products of different input for various years and observe that the marginal product of labor has increased after Iran-Iraq imposed war. Moreover the marginal product of energy has increased since 1995. This might be a result of energy saving policy implemented in Iran after this year.