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Sequentiality versus Simultaneity: Interrelated Factor Demand

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Author Info

  • Asphjell, Magne Krogstad

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Letterie, Wilko

    ()
    (Maastricht University, School of Business and Economics)

  • Nilsen, Øivind Anti

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Pfann, Gerard A.

    ()
    (Maastricht University, School of Business and Economics)

Abstract

A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 29/2010.

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Length: 47 pages
Date of creation: 02 Dec 2010
Date of revision:
Handle: RePEc:hhs:nhheco:2010_029

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Keywords: Factor Demand; Labour; Capital; Interrelation; Nonconvex Adjustment Costs.;

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References

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  1. Galeotti, Marzio & Schiantarelli, Fabio, 1991. "Generalized Q Models for Investment," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 383-92, August.
  2. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  3. Nilsen, Oivind A. & Salvanes, Kjell G. & Schiantarelli, Fabio, 2007. "Employment changes, the structure of adjustment costs, and plant size," European Economic Review, Elsevier, vol. 51(3), pages 577-598, April.
  4. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  5. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
  6. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2009. "Lumpy investments, factor adjustments, and labour productivity," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 104-127, January.
  7. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  8. Plutarchos Sakellaris, 2001. "Patterns of plant adjustment," Finance and Economics Discussion Series 2001-05, Board of Governors of the Federal Reserve System (U.S.).
  9. Letterie, Wilko A. & Pfann, Gerard A. & Polder, J. Michael, 2004. "Factor adjustment spikes and interrelation: an empirical investigation," Economics Letters, Elsevier, vol. 85(2), pages 145-150, November.
  10. Letterie, Wilko A. & Pfann, Gerard A., 2007. "Structural identification of high and low investment regimes," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 797-819, April.
  11. Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(2), pages 345-387, August.
  12. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
  13. Pfann, Gerald A. & Verspagen, Bart, 1989. "The structure of adjustment costs for labour in the Dutch manufacturing sector," Economics Letters, Elsevier, vol. 29(4), pages 365-371.
  14. Simon Gilchrist & Charles Himmelberg, 1998. "Investment, Fundamentals and Finance," NBER Working Papers 6652, National Bureau of Economic Research, Inc.
  15. Andrew B. Abel & Janice C. Eberly, 1995. "A Unified Model of Investment Under Uncertainty," NBER Working Papers 4296, National Bureau of Economic Research, Inc.
  16. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
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Cited by:
  1. Yaman, F., 2011. "The costs of adjusting labor: Evidence from temporally disaggregated data," Working Papers 11/10, Department of Economics, City University London.
  2. Hirokazu Mizobata, 2014. "Differing factor adjustment costs across industries: Evidence from Japan," KIER Working Papers 885, Kyoto University, Institute of Economic Research.
  3. M. Grazzi & N. Jacoby & T. Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," Working Papers wp869, Dipartimento Scienze Economiche, Universita' di Bologna.

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