9409630 Caballero This research will study the process by which firms adjust to new conditions and renovate the institutions and constraints that accelerate and depress such a process. The study is divided into three parts. The first part develops a microeconomic model of investment with fixed costs and it examines how firms adjust to micro-level shocks, and have different time-varying adjustment costs. This part of the study uses U.S. investment data at the sectoral level to examine how firms adjust their employment levels. The second part of the study develops a model of creative destruction. Creative destruction refers to a setting where the loss of jobs and plant closings involve inefficiencies due to externalities in job search and externalities due to changes in production techniques. The third part of the reserarch focuses on the diffusion of ideas and their contribution to economic growth. The main goal is to generate empirical estimates of the impact of knowledge spillovers on research's productivity and economic growth. This study is of significant interest because it provides results that improves our understanding of how a wide range of labor market inefficiencies could affect sectoral restructuring and reallocation of resources from shrinking industries to growing industries, among other things.
