SEQUENTIALITY VERSUS SIMULTANEITY: INTERRELATED FACTOR DEMAND

Firms may adjust capital and labor sequentially or simultaneously. In this paper, we develop a structural model of interrelated factor demand subject to nonconvex adjustment costs and estimated by simulated method of moments. Based on Norwegian manufacturing industry plant-level data, parameter esti...

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Bibliographic Details
Published in:The review of economics and statistics 2014-12, Vol.96 (5), p.986-998
Main Authors: Asphjell, Magne K., Letterie, Wilko, Nilsen, Øivind A., Pfann, Gerard A.
Format: Article
Language:English
Subjects:
Capital costs
Cost estimates
Cost estimation models
Cost structure
Demand
Economic costs
Economic models
Economic theory
Estimating techniques
Experimental methods
Fixed costs
Hiring
Labor costs
Labour market
Manufacturing
Norway
Panel data
Parameter estimation
Production factors
Simultaneity
Statistical analysis
Studies
Western Europe
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Summary:Firms may adjust capital and labor sequentially or simultaneously. In this paper, we develop a structural model of interrelated factor demand subject to nonconvex adjustment costs and estimated by simulated method of moments. Based on Norwegian manufacturing industry plant-level data, parameter estimates reveal cost advantages for adjusting capital and making net changes in labor simultaneously. Factor demand models with fully specified interrelated adjustment costs structures perform best to describe the dynamic panel data.
ISSN:0034-6535
1530-9142
DOI:10.1162/REST_a_00411