Automobile Electronics and Capital Adjustment Costs

To make quantitative evaluations on the nature of capital adjustment costsCapital adjustment cost(s), in the face of technological changes, we estimate capital adjustment costCapital adjustment cost(s) functions, either convexConvex/non-convex, or irreversible (Cooper and Haltiwanger, Review of Economic Studies 73:611–633, 2006). A simulated method of momentsSimulated method of moments (SMM) is applied to the Bellman equationsBellman equation at an establishment level of Japanese auto-parts suppliersJapanese auto-parts supplier(s) (Census of Manufactures), where experiencing a technological change of automobile electronicsAutomobile electronics, an application of general purpose technologyGeneral purpose technology (David, American Economic Review 80:355–361, 1990; Jovanovic, B., & Rousseau, P. (2005). General purpose technologies. In Handbook of economic growth. vol. 1b P. Aghion & S. Durlauf (Eds.). Elsevier BV, 1181-1224.). Identifying when and where auto-electronics technologies have been embodied in auto-parts suppliersAuto-parts supplier(s), we use patentPatent acquisition data and plant products: electronically-controlled fuel injection; electric power steering; anti-lock brakes; airbags; navigation; wire harnesses; and lithium-ion batteries. For overall auto-parts suppliersAuto-parts supplier(s), there are no adjustment costs in any form, neither convexConvex/non-convex, nor irreversible. As for the sectoral plants with automobile electronicsAutomobile electronics embodied in the tangible capitals, we clearly detect a significant existence of the convexConvex adjustment costs. Anomalously, auto electronics also make investment decisions reversible. Moreover, the fixed costs of plant restructuring, worker retraining, or organizational restructuring emerge, especially in the form of costs proportional to plant size rather than the opportunity cost of investment. The nature of adjustment costs implies economic policy measures to compensate for output losses arising from capital adjustment costsCapital adjustment cost(s) in the face of general purpose technologies.