Work

Comparative Statics With Adjustment Costs and the Le Chatelier Principle

Year: 2025

Type: article

Abstract: We develop a theory of monotone comparative statics for models with adjustment costs. We show that comparative‐statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming very little about costs: only a mild monotonicity condition is required. We use this insight to prove a general Le Chatelier principle: under the ordinal complementarity assumptions, if short‐run adjustment is subject to a monotone cost, then the long‐run response to a shock is greater than the short‐run response. We extend these results to a fully dynamic model of adjustment over time: the Le Chatelier principle remains valid, and under slightly stronger assumptions, optimal adjustment follows a monotone path. We apply our results to models of saving, production, pricing, labor supply, and investment.

Source: Econometrica

DOI: 10.3982/ecta22841

Authors: Eddie Dekel, John K.-H. Quah, Ludvig Sinander

Institutions: Northwestern University, Tel Aviv University, National University of Singapore, University of Oxford

Language: English

Topic: Economic theories and models

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $5,290

Funders: National Science Foundation, Tel Aviv University