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The Intertemporal Dimension of Neoclassical Production Theory

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  • Galeotti, Marzio

Abstract

The aim of this survey paper is to provide a guide to the literature on optimal dynamic factor demands to the non-specialist reader interested in applied work. We start with the distinction between variable and quasi-fixed factors of production and use these to characterize the firm's temporary equilibrium. We then review the optimal intertemporal behaviour of the firm, using the notion of adjustment costs as a means to solve the firm's optimization problem. This process gives rise to a system of interrelated dynamic factor demands in a flexible accelerator format. Theoretical difficulties and empirical limitations of this model are discussed. This fact leads us to review the theory of intertemporal duality. We next analyze the issue of expectations in this class of dynamic models. A section reviewing the empirical work on dynamic factor demands follows, after which we offer some concluding remarks. Copyright 1996 by Blackwell Publishers Ltd

Suggested Citation

  • Galeotti, Marzio, 1996. "The Intertemporal Dimension of Neoclassical Production Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 10(4), pages 421-460, December.
    • Handle: RePEc:bla:jecsur:v:10:y:1996:i:4:p:421-60
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    Cited by:

    1. Matteo Manera, 2006. "Modelling factor demands with SEM and VAR: an empirical comparison," Journal of Productivity Analysis, Springer, vol. 26(2), pages 121-146, October.
    2. Matteo Manera & Bruno Sitzia, 2005. "Empirical factor demands and flexible functional forms: a bayesian approach," Economic Systems Research, Taylor & Francis Journals, vol. 17(1), pages 57-75.
    3. Roberta Capello & Ugo Fratesi, 2009. "Modelling European Regional Scenarios: Aggressive versus Defensive Competitive Strategies," Environment and Planning A, , vol. 41(2), pages 481-504, February.
    4. Lin, Ni & Shumway, C. Richard, 2000. "Asset Fixity In U.S. Agriculture: Robustness To Functional Form," Ag Econ Series 12967, Washington State University, School of Economic Sciences.
    5. Roberta Capello, 2007. "A forecasting territorial model of regional growth: the MASST model," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(4), pages 753-787, December.
    6. Caputo, Michael R., 2003. "The comparative dynamics of closed-loop controls for discounted infinite horizon optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1335-1365, June.
    7. Thomsen, Thomas, 2000. "Short cuts to dynamic factor demand modelling," Journal of Econometrics, Elsevier, vol. 97(1), pages 1-23, July.

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