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Capital maintenance Vs technology adoption under embodied technical progress

  • MARTINEZ, Blanca
  • SAGLAM, Cagri

We study an optimal growth model with one-hoss-shay vintage capital, where labor resources can be allocated freely either to production, technology adoption or capital maintenance. Technological progress is partly embodied. Adoption labor increases the level of embodied technical progress. First, we are able to disentangle the amplificationpropagation role of maintenance in business fluctuations: in the short run, the response of the model to transitory shocks on total factor productivity in the final good sector are definitely much sharper compared to the counterpart model without maintenance but with the same average depreciation rate. Moreover, the one-hoss shay technology is shown to reinforce this amplification-propagation mechanism. We also find that accelerations in embodied technical progress should be responded by a gradual adoption effort, and capital maintenance should be the preferred instrument in the short run.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006058.

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Date of creation: 00 Jun 2006
Date of revision:
Handle: RePEc:cor:louvco:2006058
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