Scandinavian Working Papers in Economics
Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics
No 29/2010: Sequentiality versus Simultaneity: Interrelated Factor Demand.
Magne Krogstad Asphjell (), Wilko Letterie (), Øivind Anti Nilsen () and Gerard A. Pfann ()
Additional contact information
Magne Krogstad Asphjell: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Wilko Letterie: Maastricht University, School of Business and Economics, Postal: Maastricht University, School of Business and Economics, Department of Organization and Strategy , P.O. Box 616, 6200 MD Maastricht, The Netherlands
Øivind Anti Nilsen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Gerard A. Pfann: Maastricht University, School of Business and Economics, Postal: Maastricht University, School of Business and Economics, Department of Econometrics, P.O. Box 616, 6200 MD Maastricht, , The Netherlands
Abstract: A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.
Keywords: Factor Demand; Labour; Capital; Interrelation; Nonconvex Adjustment Costs.
JEL-codes: D92; E22; E24; J23; L60
47 pages, December 2, 2010
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