Aruga, Osamu (2007): Conventional or New? Optimal Investment Allocation across Vintages of Technology.
Download (243Kb) | Preview
This paper develops and analyzes a growth model that consists of complementary long-lived and short-lived vintage-specific capital. As a result of the existence of complementary capital that is vintage compatible but has different longevity, the model generates two distinct investment patterns: (i) if the rate of vintage-specific technological progress is above a threshold–which is the product of long-lived capital’s share and the difference in the rates of depreciation–then all new investment is allocated to the capital that embodies the frontier technology; (ii) otherwise, some investment is allocated to obsolete, short-lived capital to exploit the existing stock of obsolete long-lived capital.
The result provides a new explanation for observed investment in obsolete technologies. An important implication of this result is that equipment price-changes do not necessarily reflect the rate of progress, since the prices of obsolete short-lived capital remain the same when the rate of the progress is slow enough (as mentioned in (ii) above). Another implication is that acceleration in the rate of vintage-specific technological progress can cause an abrupt reallocation of investment towards modern capital–consistent with investment booms that are concentrated in certain “high-tech” equipment.
|Item Type:||MPRA Paper|
|Original Title:||Conventional or New? Optimal Investment Allocation across Vintages of Technology|
|Keywords:||Vintage Capital, Intangible Capital, Capital Heterogeneity, Pricing of Capital Goods, Maintenance and Repair|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Osamu Aruga|
|Date Deposited:||01. Dec 2007 12:20|
|Last Modified:||02. Mar 2013 18:39|
Aruga, O. (2006): “Economic Growth Models with Capital Heterogeneity and Vintage Specific Technological Change,” Ph.D. thesis, University of Michigan, Ann Arbor. Atkeson, A. and P. J. Kehoe (2005): “Modeling and Measuring Organization Capital,” The Journal of Political Economy, 113, 1026. Benhabib, J. and A. Rustichini (1991): “Vintage capital, investment, and growth,” Journal of Economic Theory, 55, 323–339. Chari, V. V. and H. Hopenhayn (1991): “Vintage Human Capital, Growth, and the Diffusion of New Technology,” Journal of Political Economy, 99, 1142–1165. Corrado, C. A., C. R. Hulten, and D. E. Sichel (2006): “Intangible Capital and Economic Growth,” Working Paper 11948, National Bureau of Economic Research. Cummins, J. G. and G. L. Violante (2002): “Investment-Specific Technical Change in the United States (1947-2000): Measurement and Macroeconomic Consequences,” Review of Economic Dynamics, 5, 243–284. Felli, L. and F. Ortalo-Magne (1998): “Technological Innovations: Slumps and Booms,” CEP Discussion Papers. Centre for Economic Performance, LSE. Fraumeni, B. M. (1997): “The Measurement of Depreciation in the U.S. National Income and Product Accounts,” Survey of Current Business, 77, 7–23. Gordon, R. J. (1990): The measurement of durable goods prices, National Bureau of Economic Research Monograph series, Chicago and London: University of Chicago Press. Greenwood, J., Z. Hercowitz, and P. Krusell (1997): “Long-Run Implications of Investment-Specific Technological Change,” The American Economic Review, 87, 342–362. Hall, R. E. (2001): “The Stock Market and Capital Accumulation,” American Economic Review, 91, 1185–1202. Hulten, C. R. (1992): “Growth Accounting When Technical Change is Embodied in Capital,” The American Economic Review, 82, 964–980. Jorgenson, D. W., M. S. Ho, and K. J. Stiroh (2007): “A Retrospective Look at the U.S. Productivity Growth Resurgence,” Staff Reports 277, Federal Reserve Bank of New York. Jovanovic, B. and Y. Nyarko (1996): “Learning by Doing and the Choice of Technology,” Econometrica: Journal of the Econometric Society, 64, 1299–1310. Laitner, J. and D. Stolyarov (2003): “Technological change and the stock market,” American Economic Review, 93, 1240–1267. McGrattan, E. R. and E. C. Prescott (2005): “Taxes, Regulations, and the Value of U.S. and U.K. Corporations,” The Review of Economic Studies, 72, 767–796. McGrattan, E. R. and J. A. Schmitz (1999): “Maintenance and Repair: Too Big to Ignore,” Federal Reserve Bank of Minneapolis Quarterly Review, 23, 2–13. Mullen, J. K. and M. Williams (2004): “Maintenance and repair expenditures: determinants and tradeoffs with new capital goods,” Journal of economics and business, 56, 483–499. Nakamura, T. and H. Ohashi (2007): “Effects of Technology Adoption on Productivity and Industry Growth,” Journal of Industrial Economics, forthcoming. Oliner, S. D. and D. E. Sichel (2003): “Information technology and productivity: where are we now and where are we going?” Journal of Policy Modeling, 25, 477–503. Parente, S. L. (1994): “Technology Adoption, Learning-by-Doing, and Economic Growth,” Journal of Economic Theory, 63, 346–369. Prucha, I. R. and M. I. Nadiri (1996): “Endogenous capital utilization and productivity measurement in dynamic factor demand models Theory and an application to the U.S. electrical machinery industry,” Journal of Econometrics, 71, 343–379. Saxonhouse, G. and G. Wright (2000): “Technological Evolution in Cotton Spinning, 1878-1933,” Mimeo. Solow, R. (1960): “Investment and Technological Progress,” in Mathematical Methods in the Social Sciences 1959, ed. by K. Arrow, S. Karlin, and P. Suppes, Stanford, CA: Stanford University Press, 89–104.
Available Versions of this Item
Conventional or New? Optimal Investment Allocation across Vintages of Technology. (deposited 01. Dec 2007 12:20)
- Conventional or New? Optimal Investment Allocation across Vintages of Technology. (deposited 01. Nov 2009 14:22)