Investment in vintage capital

Boyan Jovanovic; Yuri Yatsenko

doi:10.1016/j.jet.2010.10.017

Investment in vintage capital

Boyan Jovanovic, Yuri Yatsenko

Research output: Contribution to journal › Article › peer-review

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 language	English (US)
Pages (from-to)	551-569
Number of pages	19
Journal	Journal of Economic Theory
Volume	147
Issue number	2
DOIs	https://doi.org/10.1016/j.jet.2010.10.017
State	Published - 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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10.1016/j.jet.2010.10.017

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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.",

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AB - 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.

KW - CES function

KW - General equilibrium

KW - Intra-firm adoption lags

KW - Optimal control

KW - Technological change

KW - Vintage capital models

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Investment in vintage capital

Abstract

Keywords

ASJC Scopus subject areas

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