Internal Adjustment Costs of Firm-Specific Factors and the Neoclassical Theory of the Firm

V. K. Chetty and James Heckman
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V. K. Chetty: Boston University

No 15744, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper considers the consequences of a two-sector vertically-integrated model of firms producing output using firm-specific capital with a second sector producing firm-specific capital by adapting raw capital purchased in the market. Analysts rarely observe each sector separately. Aggregating over both sectors produces short-run and long-run factor demand functions that appear to be perverse, but when disaggregated obey standard neoclassical properties. Adjustment costs create the appearance of static inefficiency in the presence of dynamic efficiency.

Keywords: firm-specific capital; frontier production theory; factor demand; adjustment costs (search for similar items in EconPapers)
JEL-codes: D21 E13 L11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2022-11
New Economics Papers: this item is included in nep-cfn and nep-eff
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Published - published in: Kumbhakar, S.C., Sickles, R.C., Wang, H.J. (eds), Advances in Applied Econometrics. Advanced Studies in Theoretical and Applied Econometrics, Springer, Cham, 2024, 55, 239 - 258

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Related works:
Journal Article: Internal adjustment costs of firm-specific factors and the neoclassical theory of the firm (2023)
Working Paper: Internal Adjustment Costs of Firm-Specific Factors and the Neoclassical Theory of the Firm (2022)
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