Abstract
Various authors have investigated the dynamic theory of factor demands by considering the “costs of adjustment” faced by the firm. See Eisner and Strotz [5], Treadway [15], Lucas [8], Lucas and Prescott [9], Mortensen [12], Brock and Scheinkman [3] and Scheinkman [14]. In such models the firm maximizes the present value of its profit stream under the constraint that changing the levels of factor inputs involves costs of adjustment. One can then obtain optimal time paths for investments, that is for the accumulation or decumulation of the stocks of factor inputs. Under certain assumptions on the structure of the model, the optimal time paths of the stock of factors asymptotically approach some long-run equilibrium value. In particular Brock and Scheinkman [3] and Scheinkman [14] have studied conditions under which factor levels globally converge to some steady state equilibrium.
We are grateful to Professors W. A. Brock and M. J. P. Magill for suggestions and constant encouragement. Also, we would like to thank Cyrus Sorooshian for his help with the innumerable calculations in the paper.
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Benhabib, J., Nishimura, K. (1984). Cyclical Input Demands and the Adjustment Cost Theory of the Firm. In: Goodwin, R.M., Krüger, M., Vercelli, A. (eds) Nonlinear Models of Fluctuating Growth. Lecture Notes in Economics and Mathematical Systems, vol 228. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-45572-8_6
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