Marshall's Rules for Derived Demand: A Critique and a Generalisation.

This paper demonstrates that Alfred Marshall's four rules for the determinants of the elasticity of derived demand, as amended by John R. Hicks, are inapplicable except in special circumstances, such as Cobb-Douglas technology. Generalized versions of the rules are derived for the more normal case in which cost shares are determined endogenously as an outcome of the maximization process. Numerical examples illustrate that the standard Marshall-Hicks rules yield wrong answers for a range of parameter values. Copyright 1989 by Scottish Economic Society.