Sequentiality versus simultaneity: Interrelated factor demand

M.K. Asphjell*, W.A. Letterie, O.A. Nilsen, G.A. Pfann

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Firms may adjust capital and labor sequentially or simultaneously. In this paper, we develop a structural model of interrelated factor demand subject to nonconvex adjustment costs and estimated by simulated method of moments. Based on Norwegian manufacturing industry plant-level data, parameter estimates reveal cost advantages for adjusting capital and making net changes in labor simultaneously. Factor demand models with fully specified interrelated adjustment costs structures perform best to describe the dynamic panel data.
Original languageEnglish
Pages (from-to)986-998
JournalReview of Economics and Statistics
Issue number5
Publication statusPublished - 1 Dec 2014

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