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

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Author Info
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))

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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

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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 2001023.

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Length: 20
Date of creation: 01 Sep 2000
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Handle: RePEc:ctl:louvir:2001023

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Related research
Keywords: Investment theory; Embodied technological progress; Energy; Investment dynamics;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques

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References listed on IDEAS
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  1. BOUCEKKINEÊ , Raouf & GERMAINÊ, Marc & LICANDROÊ, Omar, 1996. "General Equilibrium Vintage Capital Growth Models Displaying Periodic Solutions : A Theoretical Example," CORE Discussion Papers 1996032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 477-94, July. [Downloadable!] (restricted)
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  3. R. Boucekkine & M. Germain & O. Licandro & A. Magnus, . "Creative destruction, investment volatility, and the average age of capital," Working Papers 97-08, FEDEA.
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  4. Raouf Boucekkine & David de la Croix & Omar Licandro, 2006. "Vintage Capital," Economics Working Papers ECO2006/8, European University Institute. [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, vol. 55(2), pages 323-339, December. [Downloadable!] (restricted)
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  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  8. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December. [Downloadable!] (restricted)
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  9. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April. [Downloadable!] (restricted)
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  10. Ricardo J. Caballero & Mohamad L. Hammour, 1994. "On the Timing and Efficiency of Creative Destruction," NBER Working Papers 4768, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-85, December. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruno CRUZ & Aude POMMERET, 2003. "Subsidizing energy saving capital accumulation: a real option approach," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.14, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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