What is the implication of perfectly reversible capital?
I think I get the answer but I am not 100% sure. Any comment would be welcome.
I realized that this is related to the search-matching nature of the model (comparing to competitive labor market), so that if capital is not perfectly reversible the worker can bargain with the firm. Note that even with perfect reversibility, given the match-specific surplus, the wage is still determined by a Nash Bargaining. However the firm's choice of capital would be independent to this Nash Bargaining and be efficient ($f^{\prime}(k)=r+\delta$).