Take Action

Home | Faculty & Research Overview | Research

Research Details

The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment, Carnegie-Rochester Conference Series on Public Policy

Abstract

When factors of production can be adjusted costlessly, the mix of factors can be considered separately from their scale. We examine factor choice and utilization when investment is irreversible and subject to a fixed cost, so that the capital stock is a quasi-fixed factor that is adjusted infrequently and by discrete amounts. We derive and analyze analytic approximations for optimal investment behavior, and show how the quasi-fixity of capital eliminates the dichotomy between factor mix and scale. In addition, the quasi-fixity of capital has important implications for the dynamics of employment by the firm. We show that labor hoarding can arise, even though labor is modeled as a purely flexible factor.

Type

Article

Author(s)

Andrew B Abel, Janice C. Eberly

Date Published

1998

Citations

Abel, B Andrew, and Janice C. Eberly. 1998. The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment. Carnegie-Rochester Conference Series on Public Policy. 48: 101-135.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action