Investment in vintage capital

Boyan Jovanovic, Yuri Yatsenko

    Research output: Contribution to journalArticle

    Abstract

    We study an economy in which firms use labor and various vintages of capital in a CES production function for the final good. We explicitly solve for the investment in capital of a given vintage as a function of its age, and for the resulting stocks of capital. We show that for reasonable parameter values, inverted-U-shaped dynamics of investment and S-shaped dynamics for capital arise in equilibrium. We view the model as an explanation of intra-firm adoption lags, i.e., the observation that firms adopt innovations over time and not instantaneously.

    Original languageEnglish (US)
    Pages (from-to)551-569
    Number of pages19
    JournalJournal of Economic Theory
    Volume147
    Issue number2
    DOIs
    StatePublished - Mar 2012

    Keywords

    • CES function
    • General equilibrium
    • Intra-firm adoption lags
    • Optimal control
    • Technological change
    • Vintage capital models

    ASJC Scopus subject areas

    • Economics and Econometrics

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