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Estimating Adjustment Costs with Data on Heterogeneous Capital Goods

  • Austan Goolsbee
  • David B. Gross

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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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
Date of revision:
Handle: RePEc:nbr:nberwo:6342
Note: PE EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
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  1. 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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  7. Matthew D. Shapiro, 1986. "Capital Utilization and Capital Accumulation: Theory and Evidence," NBER Working Papers 1900, National Bureau of Economic Research, Inc.
  8. Hamermesh, Daniel S, 1992. "A General Model of Dynamic Labor Demand," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 733-37, November.
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  10. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
  11. Borenstein, S., 1991. "The Evolution of U.S. Airline Competition," Papers 389, California Davis - Institute of Governmental Affairs.
  12. Giuseppe Bertola & Ricardo J. Caballero, 1990. "Kinked Adjustment Costs and Aggregate Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 237-296 National Bureau of Economic Research, Inc.
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  14. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  15. Austan Goolsbee, 1998. "Investment Tax Incentives, Prices, And The Supply Of Capital Goods," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 121-148, February.
  16. Härdle, W.K., 1992. "Applied Nonparametric Methods," Discussion Paper 1992-6, Tilburg University, Center for Economic Research.
  17. Andrew B. Abel & Janice C. Eberly, 1993. "A Unified Model of Investment Under Uncertainty," NBER Working Papers 4296, National Bureau of Economic Research, Inc.
  18. Giuseppe Bertola & Ricardo J. Caballero, 1991. "Irreversibility and Aggregate Investment," NBER Working Papers 3865, National Bureau of Economic Research, Inc.
  19. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
  20. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie 9312, Humboldt Universitaet Berlin.
  21. Blackorby, Charles & Schworm, William, 1983. " Aggregating Heterogeneous Capital Goods in Adjustment-Cost Technologies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 207-22.
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