American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Obsolescence of Capital and Investment Spikes
American Economic Journal: Microeconomics
vol. 13,
no. 4, November 2021
(pp. 135–71)
Abstract
The prospect of capital obsolescence inhibits investment. Investors thus become more optimistic when the obsolescence of their capital slows down. We propose a model with no fixed costs of investment, and random technological progress that induces obsolescence of capital in place. Spikes occur precisely when technological progress slows down. Moreover, the more variable the progress, the larger are the spikes. Cross-industry data show that where price of capital declines are more variable, investment spikes are larger.Citation
Fishman, Arthur, and Boyan Jovanovic. 2021. "Obsolescence of Capital and Investment Spikes." American Economic Journal: Microeconomics, 13 (4): 135–71. DOI: 10.1257/mic.20190062Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D41 Market Structure, Pricing, and Design: Perfect Competition
- D42 Market Structure, Pricing, and Design: Monopoly
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- O31 Innovation and Invention: Processes and Incentives
- O33 Technological Change: Choices and Consequences; Diffusion Processes
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