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Capital Maintenance and Investment : Complements or Substitutes ?

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  • BOUCEKKINE, Raouf

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • RUIZ-TAMARIT Ramon

    (Universitat de Valencia (Spain))

Abstract

This paper is concerned with the theoretical properties of demand for capital maintenance services. To this end, we consider two investment problems incorporating maintenance services and we analyse their steady state equilibria. At first, we shwo that if no variable capital utilization rate is allowed, investment and maintenance expenditures have the same qualitative properties, and so cannot be regarded as gross substitutes. If a variable rate of capital utilization is allowed, the occurence of substitution Vs complementarity features and the comparative statics properties depend on the sensitivity of the postulated capital depreciation function with respect to both the rate of capital utilization and the maintenance expenditures ratio. We prove that the case where the elasticity with respect to maintenance expenditures is lower, gives much better shaped demand functions and fits definitely better the recent real business cycles studies.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001012.

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Length: 30
Date of creation: 01 May 2001
Date of revision:
Handle: RePEc:ctl:louvir:2001012

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Keywords: Investment theory; Demand for maintenance services; Capacity utilization; Substitution Vs complementarity;

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  1. Stephen L. Parente & Edward C. Prescott, 1993. "Changes in the wealth of nations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-16.
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Cited by:
  1. Raouf BOUCEKKINE & Giorgio FABBRI & Fausto GOZZI, 2009. "Maintenance and investment : Complements or Substitutes ? A Reappraisal," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Martial Dupaigne, 2007. "Les variations choisies de l'utilisation du capital : une revue des implications macroéconomiques," Revue d'économie politique, Dalloz, vol. 0(2), pages 161-196.
  3. BOUCEKKINE, Raouf & DEL RIO, Fernando & MARTINEZ, Blanca, 2006. "Technological progress obsolescence and depreciation," CORE Discussion Papers 2006027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. J. Aznar-Márquez & J. R. Ruiz-Tamarit, . "Endogenous Growth, Capital Utilization and Depreciation," Working Papers 2004-21, FEDEA.
  5. Raouf, BOUCEKKINE & Blanca, MARTINEZ & Cagri, SAGLAM, 2006. "Capital Maintenance Vs Technology Adopton under Embodied Technical Progress," Discussion Papers (ECON - Département des Sciences Economiques) 2006030, Université catholique de Louvain, Département des Sciences Economiques.
  6. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, 2011. "Real Business Cycles with Capital Maintenance," Quaderni di Dipartimento 147, University of Pavia, Department of Economics and Quantitative Methods.
  7. Blanca MARTINEZ, 2002. "Technological convergence and the connections between adoption, maintenance and investment activities," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  8. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, . "Capital Maintenance and Depreciation over the Business Cycle," DEOS Working Papers 1326, Athens University of Economics and Business.
  9. George Bitros & Elias Flytzanis, 2004. "Utilization and Maintenance in a Model with Terminal Scrapping," Macroeconomics 0411016, EconWPA.
  10. Raouf Boucekkine & Blanca Martínez & Fernando del Río, 2005. "Technological Progress And Depreciation," Working Papers. Serie AD 2005-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. George Bitros, 2010. "The theorem of proportionality in contemporary capital theory: An assessment of its conceptual foundations," The Review of Austrian Economics, Springer, vol. 23(4), pages 367-401, December.

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