An Adjustment-Cost Rationalization of Asset Fixity Theory

Shih-Hsun Hsu and Ching-Cheng Chang

American Journal of Agricultural Economics, 1990, vol. 72, issue 2, 298-308

Abstract: This article integrates a classic concept in production economics (G. L. Johnson's asset fixity theory) with the dynamic adjustment cost model. Until now the literature has considered these two to be incompatible. By relaxing the smoothness assumption of the adjustment cost function at the origin, the theory of costs of adjustment can provide a rigorous endogenization of asset fixity. G. L. Johnson and Edwards' results are then obtained when the linearity assumption of the adjustment cost function is imposed. The work reported here also indicates that both smoothness at the origin and symmetry of adjustment cost function should be subject to empirical tests.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:72:y:1990:i:2:p:298-308.

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