Estimating Adjustment Costs with Data on Heterogeneous Capital Goods

47 Pages Posted: 26 Aug 2000  

Austan Goolsbee

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

David B. Gross

Compass Lexecon

Date Written: December 1997

Abstract

This paper estimates the micro-level costs of adjusting capital using detailed data on" investment decisions in the US airline industry. The data include the capital stock retirement, market values, operating costs, and utilization rates of 16 different types of capital" goods for each airline. This data on heterogeneous capital goods allows us to estimate the" desired stock of capital for each type of plane while controlling for unobserved changes in airline" profitability. The results show clear evidence of non-convex adjustment costs inaction for capital investment and quadratic adjustment costs conditional on positive or negative" investment. The adjustment costs for utilization show similar non-convexities but with smaller" adjustment costs. Aggregating to the firm level or using accounting data obscures the non-convexities and biases the estimated adjustment costs upward."

Suggested Citation

Goolsbee, Austan and Gross, David B., Estimating Adjustment Costs with Data on Heterogeneous Capital Goods (December 1997). NBER Working Paper No. w6342. Available at SSRN: https://ssrn.com/abstract=226095

Austan Goolsbee (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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David B. Gross

Compass Lexecon ( email )

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Chicago, IL 60604
United States

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