| This thesis addresses the nature of adjustment costs. Estimates of the optimal investment decision implied by the Q-theory, the favored tool to quantify the magnitude of physical capital adjustment costs, usually produce poor results: Investment in physical capital shows little responsiveness to fundamentals, and the estimated equations have low explanatory power.; I argue that one reason for such poor fit is that the literature has overlooked organizational capital as a major source of adjustment costs at the firm level. I model organizational capital adjustment costs and quantify their magnitude by calibrating a parameterized version of the model.; In the model, organizational capital accumulation uses two margins: screening new hires, and paying higher wages to avoid worker turnover. I justify these features of the model by reference to inter-industry differences in average wage levels, and firm and job turnover rates.; The empirical results show that organizational capital accounts for a significant proportion of adjustment costs. I relate these results to the micro-features of the organizational capital accumulation function. |
