Capital Maintenance and Investment: Complements or Substitutes?

Raouf Boucekkine () and José Ruiz-Tamarit

Journal of Economics, 2003, vol. 78, issue 1, 28 pages

Abstract: This paper studies the properties of demand for capital maintenance services and its interaction with investment under variable capital utilization rate and adjustment costs. The depreciation rate varies with the maintenance effort and the utilization rate of capital. We show that the properties of the demand functions for maintenance services and capital goods depend closely on the sign of the cross derivative of the depreciation function, i.e., on whether the marginal efficiency of maintenance decreases or increases when the rate of capital utilization rises. In our model, it is impossible to reconcile some unquestionable empirical facts and some minimal regularity conditions on the demand function for maintenance services if this cross derivative is positive. In all cases, investment and maintenance are gross complements.

Keywords: Keywords: investment theory; demand for maintenance services; capacity utilization; substitution vs complementarity.; JEL classification: E22; E32; O40; C63. (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Capital maintenance and investment: complements or substitutes? (2003)
Working Paper: Capital Maintenance and Investment: Complements or Substitutes ? (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:78:y:2003:i:1:d:10.1007_s00712-002-0554-9

DOI: 10.1007/s00712-002-0554-9

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