Sequentiality Versus Simultaneity: Interrelated Factor Demand

Magne K. Asphjell; Wilko Letterie; Øivind Anti Nilsen; Gerard A. Pfann

doi:10.1162/rest_a_00411

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Sequentiality Versus Simultaneity: Interrelated Factor Demand

Magne K. Asphjell¹; Wilko Letterie²; Øivind Anti Nilsen¹; Gerard A. Pfann²

¹ Norwegian School of Economics · ² Maastricht University

The Review of Economics and Statistics 2014

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.

DOI: 10.1162/rest_a_00411
Volume: 96 (5)
Pages: 986-998
Language: en
Export: BibTeX
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