Sequentiality Versus Simultaneity: Interrelated Factor Demand

49 Pages Posted: 13 Dec 2010

See all articles by Magne Krogstad Asphjell

Magne Krogstad Asphjell

Norwegian School of Economics and Business Administration

Wilko H. Letterie

Maastricht School of Business and Economics; Maastricht University

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Gerard A. Pfann

Maastricht University; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

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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 Classification: D92, E22, E24, J23, L60

Suggested Citation

Asphjell, Magne Krogstad and Letterie, Wilko H. and Nilsen, Oivind Anti and Pfann, Gerard Antonie, Sequentiality Versus Simultaneity: Interrelated Factor Demand. IZA Discussion Paper No. 5359, Available at SSRN: https://ssrn.com/abstract=1723997

Magne Krogstad Asphjell (Contact Author)

Norwegian School of Economics and Business Administration ( email )

Helleveien 30
Bergen, NO-5045
Norway

Wilko H. Letterie

Maastricht School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
31-43-3883645 (Phone)
31-43-3213137 (Fax)

Maastricht University

P.O. Box 616
Maastricht, 6200MD
Netherlands

Oivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Gerard Antonie Pfann

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-43-388 3832 (Phone)
+31-43-388 4856 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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