Optimal Growth under Endogeneous Depreciation, Capital Utilization and Maintenance Costs
This paper analyzes the equilibrium dynamics of an 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 features.
|Date of creation:||2001|
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- Ellen R. McGrattan & James A. Schmitz, 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
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- Collard, Fabrice & Kollintzas, Tryphon, 2000. "Maintenance, Utilization, and Depreciation along the Business Cycle," CEPR Discussion Papers 2477, C.E.P.R. Discussion Papers.
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- Omar Licandro & Luis A. Puch, 2000.
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GENES, issue 58, pages 143-164.
- Puch, Luis A. & Licandro, Omar, 1995. "Capital utilization: maintenance costs and the business cycle," UC3M Working papers. Economics 3917, Universidad Carlos III de Madrid. Departamento de Economía.
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- Ruiz-Tamarit, JosÃ© Ramon, 1995. "DÃ©prÃ©ciation endogÃ¨ne et sous-utilisation du capital," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995026, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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