This paper develops a generalised adjustment cost framework that explicitly accounts for zero investments on Dutch pig farms. A farm-specific flexible adjustment cost function is used to account for differences in adjustment costs between farms. Using the Generalised Method of Moments the Euler equations for investment in buildings and machinery are estimated on a panel of specialised Dutch pig farms. It is found that adjustment costs are an important determinant in investment for buildings but not for machinery.
- asymmetric adjustment
- dynamic adjustment