Maintenance and investment: Complements or Substitutes ? A Reappraisal

Raouf Boucekkine (raouf.boucekkine@univ-amu.fr), Giorgio Fabbri and Fausto Gozzi

No 2009010, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: A benchmark AK optimal growth model with maintenance expenditures and endogeneous utilization of capital is considered within an explicit vintage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital depreciation and obsolescence. It is also shown that in this set-up past investment profile completely determines the size of current maintenance expenditures. Among other findings, a closed-form solution to optimal dynamics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in contrast to the pre-existing literature, we study investment and maintenance co-movements without any postulated ad-hoc depreciation function. In particular, we find that optimal investment and maintenance do move together in the short-run in response to neutral technological shocks, which seems to be more consistent with the data

Keywords: Maintenance; investment; optimal control; dynamic programming; infinite dimensional problem (search for similar items in EconPapers)
JEL-codes: E22 E32 O40 (search for similar items in EconPapers)
Pages: 31
Date: 2009-04-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Related works:
Journal Article: Maintenance and investment: Complements or substitutes? A reappraisal (2010)
Working Paper: Maintenance and investment: complements or substitutes? A reappraisal (2010)
Working Paper: Maintenance and investment: Complements or substitutes? A reappraisal (2010)
Working Paper: Maintenance and investment: complements or substitutes? A reappraisal (2009)
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