An implicit model of adjustment costs in differential input demand systems
This study provides a theoretical framework for implicitly accounting for adjustment costs in differential systems of factor demand relationships. Differential factor demand relationships, as they are represented by parameters of the cost function, are generally assumed to be linear in the parameter...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
General Association of Economists from Romania
2018-06-01
|
| Series: | Theoretical and Applied Economics |
| Subjects: | |
| Online Access: |
http://store.ectap.ro/articole/1333.pdf
|
| Summary: | This study provides a theoretical framework for implicitly accounting for adjustment
costs in differential systems of factor demand relationships. Differential factor demand
relationships, as they are represented by parameters of the cost function, are generally assumed to
be linear in the parameters in the existing empirical literature. I argue that this linearity might not
always hold because firms may incur adjustment costs that are inherent in the act of adjusting the
mix of inputs applied in the underlying production technologies. Implications of convex and nonconvex
adjustment costs for estimating differential systems as well as price and substitution
elasticities are explored. |
|---|---|
| ISSN: | 1841-8678 1844-0029 |