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

  • 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))

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
Date of revision:
Handle: RePEc:ctl:louvir:2001023
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  1. BOUCEKKINE, Raouf & GERMAIN, Marc & LICANDRO, 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. BOUCEKKINE, Raouf & DE LA CROIX, David & LICANDRO, Omar, 2006. "Vintage capital," CORE Discussion Papers 2006024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. repec:fda:fdaddt:9708 is not listed on IDEAS
  4. Thomas F. Cooley & Jeremy Greenwood & Mehmet Yorukoglu, 1994. "The Replacement Problem," Working Papers 9408, Centro de Investigacion Economica, ITAM.
  5. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  6. 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.
  7. 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.
  8. Jess Benhabib & Aldo Rustichini, 1990. "Vintage Capital, Investment and Growth," Discussion Papers 886, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
  10. 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.
  11. repec:cor:louvrp:-1376 is not listed on IDEAS
  12. 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.
  13. Martin Neil Baily, 1981. "Productivity and the Services of Capital and Labor," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 1-66.
  14. Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "1974," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 49-95, June.
    • Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
  15. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 477-94, July.
  16. 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.
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