Aruga, Osamu (2007): Conventional or New? Optimal Investment Allocation across Vintages of Technology.
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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 - 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
|Depositing User:||Osamu Aruga|
|Date Deposited:||01. Dec 2007 12:20|
|Last Modified:||02. Mar 2013 18:39|
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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)