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Operating policies in a model with terminal scrapping


  • George C. Bitros

    (Athens University of Economics & Business)

  • Elias Flytzanis

    (Athens University of Economics & Business)


We draw on three strands of literature dealing with utilization, maintenance, and scrapping in order to analyze the properties of the respective policies and their interac-tions. We do so by focusing on the last period of the received multi-period service life model and extending it in three directions: first, by associating the physical deteriora-tion of equipment to the intensity of its utilization and maintenance; second, by ex-panding on the range of explainable operating policies to allow for idling, mothballing, capacity depleting, capacity preserving, full capacity, upgrading, and downgrading; and, third, by linking the operating policies to the capital policy of scrapping. Owing to these enhancements, the analysis leads to several important findings. One among them is that optimal operating policies behave usually in opposite directions, proceed-ing in time from harder to softer or vice versa, depending on the net revenue earning capability of the equipment under consideration. Another is that profit (loss) making equipment is scrappable iff on the average the operating capital deteriorates faster (slower), or equivalently improves slower (faster), than the scrapping capital. And still an-other result is that operating policies are determined jointly with scrapping policy capi-tal policies, thus suggesting that empirical investigations of their determinants should allow for this simultaneity.

Suggested Citation

  • George C. Bitros & Elias Flytzanis, 2004. "Operating policies in a model with terminal scrapping," Macroeconomics 0411008, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0411008
    Note: Type of Document - pdf; pages: 10

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    Cited by:

    1. repec:aeb:wpaper:201603:i:3:y:2016 is not listed on IDEAS
    2. George C. Bitros, 2016. "Monetary policy, market structure and the income shares in the U.S," Working Papers 201603, Athens University Of Economics and Business, Department of Economics.

    More about this item


    Utilization; maintenance; idling; mothballing; capacity depleting; capacity pre-serving; upgrading; downgrading; scrapping.;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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