NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

When Should Firms Invest in Old Capital?

Boyan Jovanovic

NBER Working Paper No. 14000
Issued in May 2008
NBER Program(s):   PR   TWP   EFG

This paper studies optimal investment policies when the production function depends on capital of various vintages. In such an environment it is natural to ask whether the firm will invest in old-vintage capital at all. In this paper I derive such a condition. Predictably, investment in old capital takes place if the elasticity of substitution between old and new capital is low, and when the depreciation of capital is high. But other parameters such as the rates of technological progress and depreciation matter as well.

download in pdf format
   (285 K)

email paper

This paper is available as PDF (285 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Boyan Jovanovic, 2009. "When should firms invest in old capital?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 107-123.

Users who downloaded this paper also downloaded these:
Jovanovic and Rousseau w13998 Specific Capital and Technological Variety
Jovanovic w13320 Bubbles in Prices of Exhaustible Resources
Aizenman w15018 Financial Crisis and the Paradox of Under- and Over-Regulation
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us