Systematic risk, wage rates, and factor substitution

Cheng Few Lee, K. C. Chen, K. Thomas Liaw

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


The impacts of wage rates, monopoly power, and factor substitution on the systematic risk of a firm are examined. A variable elasticity of substitution production function is employed. Both the long run and the short run are analyzed. In the short run, a higher market power leads to a lower systematic risk, whereas a higher wage rate increases risk. For the long-run analysis, the impact of a wage rate change on systematic risk depends on the degree of input substitutability. In addition, both monopoly power and the degree of input substitutability conditionally reduce the systematic risk of the firm.

Original languageEnglish (US)
Pages (from-to)267-279
Number of pages13
JournalJournal of Economics and Business
Issue number3
StatePublished - Aug 1995

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics


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