Maintenance and Investment: Complements or Substitutes ? A Reappraisal
(2009) , 31 pages
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- Authors
- Abstract
- A benchmark AK optimal growth model with maintenance expenditures and endogenous utilization of capital is considered within an explicit vintage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital depreciation and obsolescence. It is also shown that in this set-up past investment profille completely determines the size of current maintenance expenditures. Among other findings, a closed-form solution to optimal dynamics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in contrast to the pre-existing literature, we study investment and maintenance co-movements without any postulated ad-hoc depreciation function. In particular, we find that optimal investment and maintenance do move together in the short-run in response to neutral technological shocks, which seems to be more consistent with the data.
- Affiliations
Universita di Napoli Dipartimento di Studi Economici Universitµa LUISS - Guido Carli Rome Dipartimento di Scienze Economiche ed Aziendali
Citations
Boucekkine, R., Fabbri, G., & Gozzi, F. (2009). Maintenance and Investment: Complements or Substitutes ? A Reappraisal (ECON Discussion Papers 2009/10). https://hdl.handle.net/2078.5/250208