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      The role of endogenous vintage specific depreciation on the optimal behavior of firms

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      Author
      Saglam, C.
      Veliov, V. M.
      Date
      2008
      Source Title
      International Journal of Economic Theory
      Print ISSN
      1742-7355
      Electronic ISSN
      1742-7363
      Publisher
      Wiley-Blackwell Publishing Ltd.
      Volume
      4
      Issue
      3
      Pages
      381 - 410
      Language
      English
      Type
      Article
      Item Usage Stats
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      Abstract
      This paper studies the firms' capital accumulation process in a vintage capital model with embodied technological change. We take into account that depreciation is endogenous and in particular associated with vintage specific maintenance expenditure. We prove that maintenance is a local substitute for investment as soon as the marginal cost of maintenance is strictly increasing. We show that maintenance and investment in new capital goods appear as complements with respect to the changes in productivity, cost of maintenance, fixed cost of operation, efficiency of maintenance services and appear as substitutes with respect to the price of new machines. Allowing for investment in old vintages, we determine that investment in old machines appears as a substitute of both investments in new machines and maintenance services. We end up by analyzing the effects of technological progress on optimal plans and prove that a negative anticipation effect can occur even without any market imperfections.
      Keywords
      Vintage capital
      Embodied technological progress
      Investment analysis
      Maintenance services
      Substitution versus complementarity
      Permalink
      http://hdl.handle.net/11693/48759
      Published Version (Please cite this version)
      https://doi.org/10.1111/j.1742-7363.2008.00085.x
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      • Department of Economics 649
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