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Optimal Capital Accumulation, Energy Cost and the Nature of Technological Progress

Author

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  • Raouf BOUCEKKINE

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

  • Aude POMMERET

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

Abstract

This paper derives the optimal pace of capital accumulation at the firm level and the corresponding investment dynamics in the presence of an energy-saving technological progress. Energy and capital are complementary. When technical progress is disembodied, the firm invests once at the first period and never invests again. The optimal capital stock is a decreasing function of the energy price. When technical progress is embodied, the optimal scrapping time of capital goods is constant and investment is periodic. The optimal effective capital stock is shown to be lower than the optimal capital stock under disembodied technical change. A striking outcome of the paper is that under embodiment, the optimal effective capital stock is an increasing function of the energy cost, in contrast to the disembodiment case

Suggested Citation

  • Raouf BOUCEKKINE & Aude POMMERET, 2000. "Optimal Capital Accumulation, Energy Cost and the Nature of Technological Progress," LIDAM Discussion Papers IRES 2001023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2001023
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    References listed on IDEAS

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    1. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February.
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    4. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June.
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    9. Boucekkine, Raouf & Germain, Marc & Licandro, Omar & Magnus, Alphonse, 1998. "Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-384, December.
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    11. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, vol. 55(2), pages 323-339, December.
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    15. BOUCEKKINE, Raouf & GERMAIN, Marc & LICANDRO, Omar, 1996. "General Equilibrium Vintage Capital Growth Models Displaying Periodic Solutions : A Theoretical Example," LIDAM Discussion Papers CORE 1996032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    16. repec:cor:louvrp:-1376 is not listed on IDEAS
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    Cited by:

    1. Bruno CRUZ & Aude POMMERET, 2003. "Subsidizing energy saving capital accumulation: a real option approach," Cahiers de Recherches Economiques du Département d'économie 03.14, Université de Lausanne, Faculté des HEC, Département d’économie.

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    More about this item

    Keywords

    Investment theory; Embodied technological progress; Energy; Investment dynamics;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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