Capital maintenance versus technology adoption under embodied technical progress
Date
2006Source Title
Contributions to Macroeconomics
Print ISSN
2194-6116
Electronic ISSN
1534-6005
Publisher
B E Press
Volume
6
Issue
1
Pages
1 - 33
Language
English
Type
ArticleItem Usage Stats
181
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200
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Abstract
We study an optimal growth model with one-hoss-shay vintage capital, where labor resources can be allocated freely either to production, technology adoption or capital maintenance. Technological progress is partly embodied. Adoption labor increases the level of embodied technical progress. First, we are able to disentangle the amplification-propagation role of maintenance in business fluctuations: in the short run, the response of the model to transitory shocks on total factor productivity in the final good sector are definitely much sharper compared to the counterpart model without maintenance but with the same average depreciation rate. Moreover, the one-hoss shay technology is shown to reinforce this amplification-propagation mechanism. We also find that accelerations in embodied technical progress should be responded by a gradual adoption effort, and capital maintenance should be the preferred instrument in the short run. Copyright © 2006 The Berkeley Electronic Press. All rights reserved.