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Dynamic factor demands for US cigarette manufacturing under rational expectations


  • Anthony Rezitis
  • A. Blake Brown
  • William Foster


The rational expectations approach to adjustment cost models for factor demand is used to develop a dynamic model for US cigarette manufacturing. In the present study dynamic production modelling is extended to the case of multiple outputs. This analysis is the first to address cigarette manufacturing allowing for the possible influence of quasi-fixed factors, multiple outputs and rational expectations. Short-, intermediate-, and long-run factor demands are estimated and the presence of adjustment costs tested for in US cigarette manufacturing. The results indicate that there are significant adjustment costs associated with adjusting tobacco stock but not with adjusting the capital stock. Cigarettes produced for exports appear to differ in their marginal cost of production from cigarettes produced for sale in the US market.

Suggested Citation

  • Anthony Rezitis & A. Blake Brown & William Foster, 2001. "Dynamic factor demands for US cigarette manufacturing under rational expectations," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1301-1311.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:10:p:1301-1311
    DOI: 10.1080/00036840122398

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