Title of dissertation : ESSAYS ON FACTOR ADJUSTMENT DYNAMICS

Title of dissertation: ESSAYS ON FACTOR ADJUSTMENT DYNAMICS Juan M. Contreras, Doctor of Philosophy, 2006 Dissertation directed by: Professor John P. Rust Professor John C. Haltiwanger Department of Economics This study analyzes dynamic production input factor decisions using the annual Census of Manufacturing firms from Colombia and monthly production data from a glass mould firm. It proposes a model that is able to explain the empirical evidence about capital and employment adjustment observed in these data-sets, namely the mix of smooth and lumpy adjustment, and both the static and dynamic interrelation in capital and employment adjustment. The key points of the explanation are the joint analysis of capital and employment adjustment and the existence of adjustment costs for capital and labor. These adjustment costs take the form of disruption in the production process and reallocation of internal resources to adjust the input factors, fixed costs of adjusting factors and congestion effects in the adjustment costs, meaning that it is more costly for firms to adjust capital and employment at the same time. The study uses a structural approach and a simulated minimum distance algorithm to estimate the adjustment cost parameters in the case of the Census of Manufacturing Firms and a calibration procedure to explore the fit of the model in the specific case of the glass mould firm ESSAYS ON FACTOR ADJUSTMENT DYNAMICS