Spanish Economic Review

, Volume 1, Issue 3, pp 239–262 | Cite as

Input cost, capacity utilization and substitution in the short run

  • Miguel A. Delgado
  • Jordi Jaumandreu
  • Ana Martín Marcos

Abstract.

This article studies the behavior of input cost shares in an environment where labor is costly to adjust, materials can be adjusted at no cost and capital is fixed. A model relating cost shares with relative prices and adjustment costs is proposed, allowing joint estimation of the elasticity of substitution and the adjustment cost function, which is an unknown function of the capacity utilization. Based on a panel of more than 700 manufacturing firms, we find evidence of strong input share variations according to the degree of capacity utilization. The estimated shapes of adjustment costs curves of labor are in agreement with our theoretical model, and we obtain sensible elasticities of substitution estimates. Based on such estimates, we find evidence of a negative (positive) bias in downturns (recoveries) in conventional productivity growth measures.

JEL classification: D24, E32 
Key words: Capacity utilization, input shares, productivity measurements 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Copyright information

© Springer-Verlag Berlin Heidelberg 1999

Authors and Affiliations

  • Miguel A. Delgado
    • 1
  • Jordi Jaumandreu
    • 2
  • Ana Martín Marcos
    • 3
  1. 1.Universidad Carlos III de Madrid, Calle Madrid 126, E-28903 Getafe, Madrid, Spain (e-mail: delgado@est-econ.uc3m.es) ES
  2. 2.FIE-FEP, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain (e-mail: jaumandreu@funep.es) ES
  3. 3.FIE-FEP-UNED, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain (e-mail: martin@sr.funep.es) ES

Personalised recommendations