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Optimal Growth under Endogenous Depreciation, Capital Utilization and Maintenance Costs

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  • Omar Licandro
  • Luis A. Puch
  • J. Ramón Ruiz-Tamarit

Abstract

This paper analyzes the equilibrium dynamics of and optimal growth model that incorporates endogenous depreciation, variable capital utilization, and expenditures on the maintenance of physical capital. Maintenance acts as a substitute for investment, since it reduces the depreciation of capital. Investment is subject to adjustment costs, and capital is not fully utilized, the degree of capital utilization affecting the activity of maintaining. We establish a set of sufficient conditions for the existence and uniqueness of a steady state equilibrium. Also, we define a "delta golden rule" consistent with the proposed economic environment and we analyze the dynamic efficiency of this economy. Finally, the steady state is found locally saddle-path stable. These results provide a framework for the analysis of comparative dynamics in general equilibrium with these featur

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Paper provided by FEDEA in its series Working Papers with number 2000-23.

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Handle: RePEc:fda:fdaddt:2000-23

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  1. Collard, Fabrice & Kollintzas, Tryphon, 2000. "Maintenance, Utilization, and Depreciation along the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2477, C.E.P.R. Discussion Papers.
  2. Motahar, Eshragh, 1992. "Endogenous capital utilization and the q theory of investment," Economics Letters, Elsevier, Elsevier, vol. 40(1), pages 71-75, September.
  3. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1154-74, December.
  4. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
  5. Beatriz Rumbos & Leonardo Auernheimer, 2001. "Endogenous capital utilization in a neoclassical growth model," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 29(2), pages 121-134, June.
  6. Omar LICANDRO & Luis A. PUCH, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annales d'Economie et de Statistique, ENSAE, ENSAE, issue 58, pages 143-164.
  7. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, Econometric Society, vol. 51(3), pages 675-92, May.
  8. Epstein, L. & Denny, M., 1980. "Endogenous capital utilization in a short-run production model : Theory and an empiral application," Journal of Econometrics, Elsevier, Elsevier, vol. 12(2), pages 189-207, February.
  9. Ruiz-Tamarit, José Ramon, 1995. "Dépréciation endogène et sous-utilisation du capital," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 1995026, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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Cited by:
  1. J. Aznar-Marquez & J.R. Ruiz-Tamarit, 2001. "Endogenous Growth, Capital Utilization and Depreciation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2001037, 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, Dalloz, vol. 0(2), pages 161-196.
  3. Ludmila Fadejeva & Aleksejs Melihovs, 2010. "Measuring Total Factor Productivity and Variable Factor Utilization," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 48(5), pages 63-101, September.
  4. Fujisaki, Seiya & Mino, Kazuo, 2009. "Long-Run Impacts of Inflation Tax with Endogenous Capital Depreciation," MPRA Paper 16657, University Library of Munich, Germany.
  5. Raouf Boucekkine & Giorgio Fabbri & Fausto Gozzi, 2009. "Maintenance and investment: complements or substitutes? A reappraisal," Working Papers, Business School - Economics, University of Glasgow 2009_21, Business School - Economics, University of Glasgow.
  6. George Bitros, 2010. "The theorem of proportionality in contemporary capital theory: An assessment of its conceptual foundations," The Review of Austrian Economics, Springer, Springer, vol. 23(4), pages 367-401, December.
  7. Monteiro, Goncalo & Cook, Adam & Dey, Sanjoy, 2013. "Optimal tax policy under habit formation and capital utilization," Journal of Macroeconomics, Elsevier, Elsevier, vol. 37(C), pages 230-248.
  8. Dioikitopoulos, Evangelos V. & Kalyvitis, Sarantis, 2008. "Public capital maintenance and congestion: Long-run growth and fiscal policies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(12), pages 3760-3779, December.
  9. BOUCEKKINE, Raouf & MARTINEZ, Blanca & SAGLAM, Cagri, 2006. "Capital maintenance Vs technology adoption under embodied technical progress," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2006058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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