Obsolescence of Capital and Investment Spikes

Arthur Fishman, Boyan Jovanovic

    Research output: Contribution to journalArticlepeer-review

    Abstract

    The prospect of capital obsolescence inhibits investment. Investors thus become more optimistic when the obsolescence of their capital slows down. We propose a model with no fixed costs of investment, and random technological progress that induces obsolescence of capital in place. Spikes occur precisely when technological progress slows down. Moreover, the more variable the progress, the larger are the spikes. Cross-industry data show that where price of capital declines are more variable, investment spikes are larger. (JEL D21, D41, D42, G31, O31, O33)

    Original languageEnglish (US)
    Pages (from-to)135-171
    Number of pages37
    JournalAmerican Economic Journal: Microeconomics
    Volume13
    Issue number4
    DOIs
    StatePublished - 2021

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

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