Optimal Growth under Endogenous Depreciation, Capital Utilization and Maintenance Costs

Omar Licandro (), Luis Puch and José Ruiz-Tamarit

No 2000-23, Working Papers from FEDEA

Abstract: This paper analyzes the equilibrium dynamics of and optimal growth model that incorporates endogenous depreciation, variable capital utilization, and expenditures on the maintenance of physical capital. Maintenance acts as a substitute for investment, since it reduces the depreciation of capital. Investment is subject to adjustment costs, and capital is not fully utilized, the degree of capital utilization affecting the activity of maintaining. We establish a set of sufficient conditions for the existence and uniqueness of a steady state equilibrium. Also, we define a "delta golden rule" consistent with the proposed economic environment and we analyze the dynamic efficiency of this economy. Finally, the steady state is found locally saddle-path stable. These results provide a framework for the analysis of comparative dynamics in general equilibrium with these featur

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Journal Article: Optimal growth under endogenous depreciation, capital utilization and maintenance costs (2001)
Working Paper: Optimal Growth under Endogeneous Depreciation, Capital Utilization and Maintenance Costs (2001)
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