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An Adjustment‐Cost Rationalization of Asset Fixity Theory
Author(s) -
Hsu ShihHsun,
Chang ChingCheng
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242333
Subject(s) - rationalization (economics) , smoothness , asset (computer security) , economics , function (biology) , econometrics , mathematical economics , microeconomics , mathematics , computer science , mathematical analysis , computer security , evolutionary biology , biology
This article integrates a classic concept in production economics (G. L. Johnson's asset fixity theory) with the dynamic adjustment cost model. Until now the literature has considered these two to be incompatible. By relaxing the smoothness assumption of the adjustment cost function at the origin, the theory of costs of adjustment can provide a rigorous endogenization of asset fixity. G. L. Johnson and Edwards' results are then obtained when the linearity assumption of the adjustment cost function is imposed. The work reported here also indicates that both smoothness at the origin and symmetry of adjustment cost function should be subject to empirical tests.