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Econometrica Vol. 93 No. 2 2025

Comparative Statics With Adjustment Costs and the Le Chatelier Principle

Eddie Dekel1,2; John K.-H. Quah3; Ludvig Sinander4

1 Department of Economics, Northwestern University · 2 Department of Economics, Tel Aviv University · 3 Department of Economics, National University of Singapore · 4 Department of Economics and Nuffield College, University of Oxford

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Abstract

We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative‐statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general Le Chatelier principle: under the ordinal complementarity assumptions, if short‐run adjustment is subject to a monotone cost, then the long‐run response to a shock is greater than the short‐run response. We extend these results to a fully dynamic model of adjustment over time: the Le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of saving, production, pricing, labor supply, and investment.

DOI
10.3982/ecta22841
Volume
93
Issue
2
Pages
661-694
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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