Dynamic factor demands for US cigarette manufacturing under rational expectations

The rational expectations approach to adjustment cost models for factor dem and is used to develop a dynamic model for US cigarette manufacturing. In t he present study dynamic production modelling is extended to the case of mu ltiple outputs. This analysis is the first to address cigarette manufacturi ng allowing for the possible influence of quasi-fixed factors, multiple out puts and rational expectations. Short-, intermediate-, and long-run factor demands are estimated and the presence of adjustment costs tested for in US cigarette manufacturing. The results indicate that there are significant a djustment costs associated with adjusting tobacco stock but not with adjust ing the capital stock. Cigarettes produced for exports appear to differ in their marginal cost of production from cigarettes produced for sale in the US market.