Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272371 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15744
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper considers the consequences of a two-sector vertically-integrated model of firms producing output using firm-specific capital with a second sector producing firm-specific capital by adapting raw capital purchased in the market. Analysts rarely observe each sector separately. Aggregating over both sectors produces short-run and long-run factor demand functions that appear to be perverse, but when disaggregated obey standard neoclassical properties. Adjustment costs create the appearance of static inefficiency in the presence of dynamic efficiency.
Subjects: 
adjustment costs
factor demand
frontier production theory
firm-specific capital
JEL: 
D21
L11
E13
Document Type: 
Working Paper

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