Maintenance and investment: complements or substitutes? A reappraisal

Boucekkine, Raouf and Fabbri, Giorgi and Gozzi, Fausto (2009) Maintenance and investment: complements or substitutes? A reappraisal. [Working Paper]. p. 29. Working Papers (2009_21).

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Abstract/Index

A benchmark AK optimal growth model with maintenance expenditures and endogenous utilization of capital is considered within an explicit vin- tage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital deprecia- tion and obsolescence. It is also shown that in this set-up past investment profile completely determines the size of current maintenance expendi- tures. Among other findings, a closed-form solution to optimal dynam- ics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in con- trast 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 to- gether in the short-run in response to neutral technological shocks, which seems to be more consistent with the data.


Item Type:Report / Paper (Working Paper)
Research documents and activity classification:Working Papers > Refereed Working Papers / of international relevance
Divisions:Department of Business and Management
Additional Information:The paper has been published in "Journal of Economic Dynamics and Control", Volume 34, Issue 12, December 2010, Pages 2420-2439
Uncontrolled Keywords:Maintenance; Investment; Optimal control; Dynamic programming; Infinite dimensional problem
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-S/06 Mathematics for Economics, Actuarial Studies and Finance
Deposited By:Maria Teresa Nistico
Deposited On:30 Nov 2010 14:50
Last Modified:19 Apr 2013 22:26

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