TY  - JOUR
AU  - Jovanovic,Boyan
TI  - When Should Firms Invest in Old Capital?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14000
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w14000
L1  - http://www.nber.org/papers/w14000.pdf
N1  - Author contact info:
Boyan Jovanovic
New York University
Department of Economics
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8953
Fax: 212/995-4186
E-Mail: Boyan.Jovanovic@nyu.edu
AB  - 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.
ER  -