Maintenance and investment: Complements or substitutes? A reappraisal

Raouf Boucekkine (), Giorgio Fabbri and Fausto Gozzi

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 12, 2420-2439

Abstract: A benchmark AK optimal growth model with maintenance expenditures and endogenous 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 using impulse response experiments, 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)
Date: 2010
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Citations: View citations in EconPapers (41)

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Related works:
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)
Working Paper: Maintenance and investment: complements or substitutes? A reappraisal (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:12:p:2420-2439

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