Quasi-fixed Inputs in U.S. and Japanese Manufacturing: a Generalized Leontief Restricted Cost Function Approach

Abstract

A Generalized Leontief variable cost function is developed which permits analytic derivation of steady state levers of quasi-fixed inputs and captivity output, and does not require specification of a numeraire input. This framework is then used to evaluate the factor demand patterns of Japanese and U.S. manufacturing, based on both one quasi-fixed (capital) input and two quasi-fixed (capital and labor) input specifcations and both static and dynamic optimization. The findings provide evidence of considerable flexibility of demand responses in Japan, which may have contributed to Japan's relatively strong economic performance in the volatile 1970s.