Boucekkine, R., Fabbri, G. and Gozzi, F. (2010) Maintenance and investment: complements or substitutes? A reappraisal. Journal of Economic Dynamics and Control, 34(12), pp. 2420-2439. (doi: 10.1016/j.jedc.2010.06.007)
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Publisher's URL: http://dx.doi.org/10.1016/j.jedc.2010.06.007
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 profile 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 using impulse response experiments, 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.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Boucekkine, Prof Raouf |
| Authors: | Boucekkine, R., Fabbri, G., and Gozzi, F. |
| Subjects: | H Social Sciences > HB Economic Theory |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Journal of Economic Dynamics and Control |
| Publisher: | Elsevier BV |
| ISSN: | 0165-1889 |
| Published Online: | 10 June 2010 |
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