Investment, replacement and scrapping in a vintage capital model with embodied technological change

Bitros, George C. and Hritonenko, Natali and Yatsenko, Yuri (2007): Investment, replacement and scrapping in a vintage capital model with embodied technological change.

Abstract

This paper analyzes and compares two alternative policies of determining the service life and replacement demand for vintage equipment under embodied technological change. The policies are the infinite-horizon replacement and the transitory replacement ending with scrapping. The corresponding vintage capital models are formulated in the dynamic optimization framework. These two approaches lead to different estimates of the duration of replacements and the impact of technological change on the equipment service life.

• Item Type: MPRA Paper
• Institution: Athens University of Economics and Business
• Language: English
• Keywords: vintage capital equipment; embodied technological change; service life; replacement; scrapping
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity