Maintenance and investment: Complements or substitutes? A reappraisal

Raouf Boucekkine (), Giorgio Fabbri and Fausto Gozzi

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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; E22; E32; O40 (search for similar items in EconPapers)
Date: 2010-10-21
Note: View the original document on HAL open archive server: https://hal.science/hal-00743831
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Citations: View citations in EconPapers (40)

Published in Journal of Economic Dynamics and Control, 2010, 34 (12), pp.2420. ⟨10.1016/j.jedc.2010.06.007⟩

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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 (2009)
Working Paper: Maintenance and investment: complements or substitutes? A reappraisal (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00743831

DOI: 10.1016/j.jedc.2010.06.007

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