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Investment and Employment Dynamics in the Short Run and the Long Run

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  • Dixit, Avinash

Abstract

A firm's stochastic dynamic investment and employment decisions are examined when each of capital and labor has linear adjustment costs of increase and decrease. The analysis generated an endogenous ranking of the two factors as more or less flexible; thus the concepts of short and long runs are endogenized. Qualitative characteristics of the dynamics of the two factors are described. Adjustment of the more flexible factor can occur on its own but that of the less flexible factor occurs less frequently and only in conjunction with a complementary adjustment of the more flexible factor. Copyright 1997 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 49 (1997)
Issue (Month): 1 (January)
Pages: 1-20

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Handle: RePEc:oup:oxecpp:v:49:y:1997:i:1:p:1-20

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Cited by:
  1. Chen, Yu-Fu & Funke, Michael, 2008. "China´s new labour contract law: no harm to employment?," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-51, Scottish Institute for Research in Economics (SIRE).
  2. Asphjell, Magne Krogstad & Letterie, Wilko & Nilsen, Øivind Anti & Pfann, Gerard A., 2010. "Sequentiality versus Simultaneity: Interrelated Factor Demand," IZA Discussion Papers 5359, Institute for the Study of Labor (IZA).
  3. Domenico Lombardi & Stephen Bond, 2004. "To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data," IMF Working Papers, International Monetary Fund 04/104, International Monetary Fund.
  4. Bazdresch, Santiago, 2013. "The role of non-convex costs in firms' investment and financial dynamics," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(5), pages 929-950.
  5. Marcelo Ochoa, 2013. "Volatility, labor heterogeneity and asset prices," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-71, Board of Governors of the Federal Reserve System (U.S.).
  6. Letterie, Wilko & Nilsen, Øivind A. & Pfann, Gerard, 2008. "Interrelated Factor Demand with Nonconvex Adjustment Costs: a Note," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 002, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Leland, Hayne E., 1999. "Optimal Portfolio Management with Transactions Costs and Capital Gains Taxes," Research Program in Finance, Working Paper Series, Research Program in Finance, Institute for Business and Economic Research, UC Berkeley qt0fw6k0hm, Research Program in Finance, Institute for Business and Economic Research, UC Berkeley.
  8. Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, Elsevier, vol. 75(2), pages 345-387, August.
  9. Jyh-Bang Jou, 2001. "Environment, Asset Characteristics, and Optimal Effluent Fees," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 20(1), pages 27-39, September.
  10. Banker, Rajiv D. & Byzalov, Dmitri & Chen, Lei (Tony), 2013. "Employment protection legislation, adjustment costs and cross-country differences in cost behavior," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 55(1), pages 111-127.
  11. Katsuya Takii, 2005. "Limited Attention, Interaction and the Growth of a Firm," Macroeconomics, EconWPA 0506005, EconWPA.
  12. Nicholas Bloom, 2000. "The dynamic effects of real options and irreversibility on investment and labour demand," IFS Working Papers, Institute for Fiscal Studies W00/15, Institute for Fiscal Studies.
  13. Letterie, Wilko A. & Pfann, Gerard A. & Polder, J. Michael, 2004. "Factor adjustment spikes and interrelation: an empirical investigation," Economics Letters, Elsevier, Elsevier, vol. 85(2), pages 145-150, November.
  14. Polder, Michael & Verick, Sher, 2004. "Dynamics of Labour and Capital Adjustment – A Comparison of Germany and the Netherlands," IZA Discussion Papers 1212, Institute for the Study of Labor (IZA).
  15. Cattaneo, Andrea & Robinson, Sherman, 2000. "Empirical models, rules, and optimization," TMD discussion papers, International Food Policy Research Institute (IFPRI) 53, International Food Policy Research Institute (IFPRI).

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