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On the Nature of Capital Adjustment Costs

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  • Russell W. Cooper
  • John C. Haltiwanger

Abstract

This paper studies the nature of capital adjustment at the plant level. We use an indirect inference procedure to estimate the structural parameters of a rich specification of capital adjustment costs. In effect, the parameters are optimally chosen to reproduce a set of moments that capture the non-linear relationship between investment and profitability found in plant-level data. Our findings indicate that a model, which mixes both convex and non-convex adjustment costs, fits the data best. Copyright 2006, Wiley-Blackwell.

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  • Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 611-633.
    • Handle: RePEc:oup:restud:v:73:y:2006:i:3:p:611-633
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2006.00389.x
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