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Estimating Adjustment Costs with Data on Heterogeneous Capital Goods

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  • Austan Goolsbee
  • David B. Gross

Abstract

This paper estimates the micro-level costs of adjusting capital using detailed data on" investment decisions in the US airline industry. The data include the capital stock retirement, market values, operating costs, and utilization rates of 16 different types of capital" goods for each airline. This data on heterogeneous capital goods allows us to estimate the" desired stock of capital for each type of plane while controlling for unobserved changes in airline" profitability. The results show clear evidence of non-convex adjustment costs inaction for capital investment and quadratic adjustment costs conditional on positive or negative" investment. The adjustment costs for utilization show similar non-convexities but with smaller" adjustment costs. Aggregating to the firm level or using accounting data obscures the non-convexities and biases the estimated adjustment costs upward."

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6342.

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Date of creation: Dec 1997
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Handle: RePEc:nbr:nberwo:6342

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  7. Blackorby, Charles & Schworm, William, 1983. " Aggregating Heterogeneous Capital Goods in Adjustment-Cost Technologies," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 85(2), pages 207-22.
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  11. Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 6, Centro de Economía Aplicada, Universidad de Chile.
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  16. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie, Humboldt Universitaet Berlin 9312, Humboldt Universitaet Berlin.
  17. Caballero, R.J., 1996. "Fixed Costs: The Demise of Marginal q," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 96-14, Massachusetts Institute of Technology (MIT), Department of Economics.
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  21. Chirinko, Robert S., 1993. "Multiple capital inputs, Q, and investment spending," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(5-6), pages 907-928.
  22. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 37(2), pages 379-415, October.
  23. Steven Berry & Michael Carnall & Pablo T. Spiller, 1996. "Airline Hubs: Costs, Markups and the Implications of Customer Heterogeneity," NBER Working Papers 5561, National Bureau of Economic Research, Inc.
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