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Adjustment costs and dynamic factor demands for U.S. cigarette manufacturing

Anthony Rezitis (), A. Blake Brown and William E. Foster

Agricultural Economics, 1998, vol. 18, issue 3, 217-231

Abstract: Following the approach of Berndt, Fuss, and Waverman, a dynamic model for U.S. cigarette manufacturing is developed and factor demands estimated. Tobacco and capital stocks are treated as quasi‐tixed inputs. The results indicate that there are significant adjustment costs associated with adjusting tobacco stocks, but not with adjusting the capital stock. Short‐run, intermediate‐run, and long‐run output constant elasticities are estimated for inputs in cigarette production. Demand for U.S. tobacco by U.S. cigarette manufacturers is found be more inelastic than shown by previous studies using static models. Cigarettes produced for export appear to differ in their marginal cost of production from cigarettes produced for the sale in the U.S. market.

Date: 1998
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Handle: RePEc:bla:agecon:v:18:y:1998:i:3:p:217-231