The Allocation of Investment across Vintages of Technology

Aruga, Osamu (2009): The Allocation of Investment across Vintages of Technology.

Abstract

This paper develops and analyzes a growth model that features complementary long-lived and short-lived vintage-specific capital. The model generates two distinct investment patterns: if the rate of vintage-specific technological progress is above a threshold, then all new investment is allocated to the capital that embodies the frontier technology; otherwise, some investment is allocated to short-lived capital that embodies vintage technology. Assuming long-lived intangible and short-lived tangible capital, the model provides two important quantitative implications: (i) acceleration in the rate of vintage-specific technological progress can cause an abrupt reallocation of investment towards modern capital; and (ii) equipment price-changes do not necessarily reflect the rate of vintage-specific technological progress.

• Item Type: MPRA Paper
• Language: English
• Keywords: Vintage Capital, Intangible Capital, Capital Heterogeneity, Pricing of Capital Goods, Maintenance and Repair
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

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