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Investment in vintage capital

Author

Listed:
  • Jovanovic, Boyan
  • Yatsenko, Yuri

Abstract

We study an economy in which firms use labor and various vintages of capital in a CES production function for the final good. We explicitly solve for the investment in capital of a given vintage as a function of its age, and for the resulting stocks of capital. We show that for reasonable parameter values, inverted-U-shaped dynamics of investment and S-shaped dynamics for capital arise in equilibrium. We view the model as an explanation of intra-firm adoption lags, i.e., the observation that firms adopt innovations over time and not instantaneously.

Suggested Citation

  • Jovanovic, Boyan & Yatsenko, Yuri, 2012. "Investment in vintage capital," Journal of Economic Theory, Elsevier, vol. 147(2), pages 551-569.
  • Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:551-569
    DOI: 10.1016/j.jet.2010.10.017
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. d’Albis, Hippolyte & Augeraud-Véron, Emmanuelle & Hupkes, Hermen Jan, 2014. "Multiple solutions in systems of functional differential equations," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 50-56.
    2. Samaniego, Roberto, 2016. "The Embodiment Controversy: on the Policy Implications of Vintage Capital models," MPRA Paper 73348, University Library of Munich, Germany.
    3. Elisa Keller & Julieta Caunedo, 2016. "Capital Obsolescence and Agricultural Productivity," 2016 Meeting Papers 686, Society for Economic Dynamics.
    4. Kredler, Matthias, 2014. "Vintage human capital and learning curves," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 154-178.
    5. Gamboa, Franklin & Maldonado, Wilfredo Leiva, 2014. "Feasibility and optimality of the initial capital stock in the Ramsey vintage capital model," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 40-45.
    6. Acemoglu, Daron, 2012. "Introduction to economic growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 545-550.
    7. Zhu, Yanyuan & Feng, Xiao, 2014. "China's national production function since 1997: A reinvestigation," Working Papers in Economics 2014,2, Bundeswehr University Munich, Economic Research Group.
    8. repec:hal:journl:halshs-00786419 is not listed on IDEAS
    9. Førsund, Finn R. & Vislie, Jon, 2016. "Leif Johansen on intra-industry structural change," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 515-527.

    More about this item

    Keywords

    Vintage capital models; CES function; General equilibrium; Technological change; Intra-firm adoption lags; Optimal control;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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