TY  - JOUR
AU  - Hall,Robert E.
TI  - Industry Dynamics with Adjustment Costs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8849
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8849
L1  - http://www.nber.org/papers/w8849.pdf
N1  - Author contact info:
Robert E. Hall
Hoover Institution
Stanford University
Stanford, CA  94305-6010
Tel: 650/723-2215
E-Mail: rehall@gmail.com
AB  - Adjustment costs determine the dynamics of the response of an industry's output to a shift in demand. Absent any adjustment costs, an increase in demand not accompanied by any change in factor prices raises output, labor, capital, and materials in the same proportion. In the presence of adjustment costs, the elasticity of the response of factors with higher costs is less than one while the elasticity of those without adjustment costs exceeds one. I develop a model of industry dynamics to capture these properties and a related econometric framework to infer adjustment costs from the observed ratios of factor responses to output responses. I find relatively precise evidence of moderate adjustment costs.
ER  -