This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: A Disequilibrium Model of Demand for Factors of Production Volume Author/Editor: M. Ishaq Nadiri and Sherwin Rosen Volume Publisher: NBER Volume ISBN: 0-87014-261-5 Volume URL: http://www.nber.org/books/nadi73-1 Publication Date: 1973 Chapter Title: Introductory pages including Preface to "A Disequilibrium Model of Demand for Factors of Production" Chapter Author: M. Ishaq Nadiri, Sherwin Rosen Chapter URL: http://www.nber.org/chapters/c1246 Chapter pages in book: (p. -25 - -9) A Disequilibrium Model of Demand for Factors of Production M. ISHAQ NADIRI National Bureau of Economic Research and New York University AND SHERWIN ROSEN National Bureau of Economic Research and University of Rochester National Bureau of Economic Research NEW YORK 1973 Distributed by Columbia University Press NEW YORK AND LONDON Copyright ©1974by National Bureau of Economic Research All rights reserved Library of Congress card number: 73—81541 ISBN: 0—87014—261—5 Printed in the United States of America i97 ADisequilibrium Model of Demand for Factors of Production NATIONAL BUREAU OF ECONOMIC RESEARCH NUMBER 99 GENERAL SERIES NATIONAL BUREAU OF ECONOMIC RESEARCH OFFICERS Arthur F. Burns, Honorary Chairman Victor R. Fuchs, Vice President-Research; Walter W. Helier, Chairman Co-director, .NBER- West 3.WilsonNewman, Vice Chairman Edwin Kuh, Director, Computer Research Center John R. Meyer, President Hal B. Lary, Vice President-Research Thomas D. Flynn, Treasurer Robert E. Lipsey, Vice President-Research Douglas H. Eldridge,VicePresident- Sherman J. Maisel, to-director, 5VBER-West Executive Secretary Geoffrey H. Moore, Vice President-Research Edward K. Smith, Vice President DIRECTORS AT LARGE Atherton Bean, InternationalMultifoods John R. Meyer, Harvard University Corporation J. Irwin Miller, Cummins Engine company, Joseph A. Beirne, Co,mnunication.t Inc. Workers of America Geoffrey H. Moore. National Bureau of ArthurF. Bums, Board of Governors of Economic Research theFederal Reserve System J. Wilson Newman, Dun & Bradstreet, Inc. Wallace 3.Campbell,Foundation for James J. O'Leary, United States Trust Cooperative Housing Company of .,Vew rork Erwin ID. Canham. Christoan Science Alice M. Riviin, Brookings Institution t'Ionitor Robert V. Roosa. Brown Brothers Harriman Emilio G. Collado, ExxonCorporation & Co. SolomonFabricant, Newrork University Boris Shishkin, Washingtrsn, D.C. Eugene P. Foley, M'ontroseSecurities,Inc. Arnold M. Solowav, Jamaicaway Tower, Eli Goldston, Eastern Gas and Fuel Associates Boston, Massachusetts David L. Grove, International Business Lazare Teper, International Ladies' Garment Machines C'orporation Workers' Union Walter W. Heller, University of 4t'Iinnesota Donald B. Woodward, Riverside, Connecticut Vivian W. Henderson, Clark College Theodore 0. Yntema, Oakland University DIRECTORS BYUNIVERSITY APPOINTMENT Moses Abramovitz, Stanford Maurice W. Lee, North Carolina Gardner Ackley, Michigan Almarin Phillips, Pennsylvania Charles H. Berry, Princeton Lloyd G. Reynolds, rale Francis M. Boddv, Minnesota Robert M. Solow, Massachusetts Institute of Otto Eckstein, Harvard Technology Walter D. Fisher, Northwestern Henri Theil, Chicago R. A. Gordon, California William S. Vickrey, Columbia Robert 3. Lampman, Wisconsin Thomas A. Wilson, Toronto DIRECTORS BY APPOINTMENT OF OTHER ORGANIZATIONS Eugene A. Birnbaum, American Management Philip M. Klutznick, Comonitteo for Economic • Association Development - ThomasD. Flynn, American Institute of Roy E. Moor, .jVational Association of Busine.ss Certified Public Accountants Economists Nathaniel Goldfinger, American Federation of Douglass C. North, Economic History Labor and Congress of Industrial Association Organizations Willard L. Thorp, American Economic Harold C. Halcrow, American Agricultural Association Economics Association W. Allen Wallis, American Statistical • Walter E. Hoadley, American Finance Association Association Robert M. Will, Canadian Economics As.vociation DIRECTORS EMERITI Percival F. Brundage Albert 3.Hettinger,Jr. Murray Shields Frank W. Fetter George B. Roberts Joseph H. Willita Gottfried Haberler SENIOR RESEARCH STAFF Gary S. Becker Michael Cart Robert E. Lipsey Nancy Ruggles Charlotte Boachan Michael Grossman Sherman 3.Mabel Richard Ruggles Phillip Cagan F. Thomas Juster Benoit B. Mandelbrot Anna 3.Schwartz Stanley Diller John F. Kain John R. Meyer Robert P. Shay Solomon Fabricant John W. Kendrick Robert T. Michael Edward K. Smith Milton Friedman Irving B. Kravis Jacob Mincer George 3.Stigler Victor R. Fuchs Edwin Kuh use Mints Victor Zarnowitz 3. Royce Ginn William M. Landes Geoffrey H. Moore Raymond W. Goldsmith Hal B. Lary M. Ishaq Nadiri RELATION OF THE DIRECTORS TO THE WORK AND PUBLICATIONS OF THE NATIONAL BUREAU OF ECONOMIC RESEARCH 1. The object of the National Bureau of Economic Research is to ascertain and to present to the public important economic facts and their interpretation in a scientific and impartial manner. The Board of Directors is charged with the responsibility of ensuring that the work of the National Bureau is carried on in strict conformity with this object. 2. The President of the National Bureau shall submit to the Board of Directors, or to its Executive Committee, for their formal adoption all specific proposals for research to be instituted. 3. 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No manuscript may be published, though approved by each member of the special manuscript committee, until forty-five days have elapsed from the transmittal of the report in manuscript form. The interval is allowed for the receipt of any memorandum of dissent or reservation, together with a brief statement of his reasons, that any member may wish to express; and such memorandum of dissent or reservation shall be published with the manuscript if he so desires. Publication does not, however, imply that each member of the Board has read the manuscript, or that either members of the Board in general or the special committee have passed on its validity in every detail. 6. Publications of the National Bureau issued for informational purposes concern- ing the work of the Bureau and its staff, or issued to inform the public of activities of Bureati staff, and volumes issued as a result of various conferences involving the Na- tional Bureau shall contain a specific disclaimer noting that such publication has not passed through the normal review procedures required in this resolution. The Executive Committee of the Board is charged with review of all such publications from time to time to ensure that they do not take on the character of formal research reports of the National Bureau, requiring formal Board approval. 7. Unless otherwise determined by the Board or exempted by the terms of para- graph 6, a copy of this resolution shall be printed in each National Bureau publication. (Resolution adopted October 25, 1926 and revised February 6, 1933, February24, 1941, April 20, 1963, and September 17, 1973) Contents Preface xv Introduction xix 1. Xature of the Problem and Relation to the Literature 1 A. General Considerations 1 B. Time-Series Employment Models 2 C. Investment Models 6 i. Output and Interest Elasticities 6 ii. The Neoclassical Model of Investment 7 D. An Example 10 2. The Structure of tize Model 13 A. Input Demand Functions 13 i.Specification of Input Prices 16 ii. The Long-Run Demand Functions 19 B. Short-Run Adjustments 24 i.Costs of Adjustment: Theoretical Considerations 25 ii. Some Qualifications 27 iii. Characterization of Disturbances 29 C. Restrictions on Adjustment Coefficients 32 D. Dynamic Properties of the System 34 E. Comparison with Other Models: Theoretical Considerations 36 3. Characteristics of the Data 40 A. Construction