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Dynamic Investment Behavior Taking into Account Ageing of the Capital Good

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  • Feichtinger, G.
  • Hartl, R.F.
  • Kort, P.M.
  • Veliov, V.

    (Tilburg University, Center for Economic Research)

Abstract

In standard capital accumulation models all capital goods are equally productive and produce goods of the same quality.However, due to ageing, in reality it holds most of the time that newer capital goods are more productive. Implications of this feature for the firm's investment policies are investigated in an optimal control problem with distributed parameters.It turns out that investing in capital goods of di¤erent age is done such that the net present value of marginal investment equals zero.Comparing the returns of investment in capital goods of different age, the higher productivity of younger capital goods has to be weighed against the lower costs of depreciation, discounting and acquisition of older capital goods.In the steady state it holds that, in the most reasonable scenario, the firm should invest at the highest rate in new capital goods, and dis-investment can only be optimal when costs of acquisition are large and machines are old.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-13.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200113

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Web page: http://center.uvt.nl

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Keywords: investment; capital goods; ageing;

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References

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  1. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 43-61, January.
  2. Boyan Jovanovic, 1998. "Vintage Capital and Inequality," NBER Working Papers 6416, National Bureau of Economic Research, Inc.
  3. Xepapadeas, A. & Zeeuw, A.J. de, 1999. "Environmental policy and competitiveness: The Porter hypothesis and the composition of capital," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80402, Tilburg University.
  4. Barucci, Emilio, 1998. "Optimal Investments with Increasing Returns to Scale," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 789-808, August.
  5. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
  6. repec:fth:starer:9816 is not listed on IDEAS
  7. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December.
  8. Davidson, Russell & Harris, Richard, 1981. "Non-Convexities in Continuous-Time Investment Theory," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 235-53, April.
  9. Jovanovic, B., 1998. "Vintage Capital and Equality," Working Papers 98-16, C.V. Starr Center for Applied Economics, New York University.
  10. Emilio Barucci & Fausto Gozzi, 2001. "Technology adoption and accumulation in a vintage-capital model," Journal of Economics, Springer, vol. 74(1), pages 1-38, February.
  11. Barucci, Emilio & Gozzi, Fausto, 1998. "Investment in a vintage capital model," Research in Economics, Elsevier, vol. 52(2), pages 159-188, June.
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Cited by:
  1. Silvia Faggian, 2008. "Equilibrium Points for Optimal Investment with Vintage Capital," Working Papers 182, Department of Applied Mathematics, Università Ca' Foscari Venezia.
  2. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2006. "Anticipation effects of technological progress on capital accumulation: a vintage capital approach," Journal of Economic Theory, Elsevier, vol. 126(1), pages 143-164, January.
  3. Luisito Bertinelli & Eric Strobl & Benteng Zou, 2006. "Polluting technologies and sustainable economic development," Working Papers 379, Bielefeld University, Center for Mathematical Economics.

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