Arbeitspapier

Irreversible investment with embodied technological progress

In this paper, we propose to explain capital accumulation in a stochastic framework by taking into account the two main motives for investment. Specifically, firms invest to expand capacity and to replace old machines. The model considers irreversible investment under uncertainty and embodied technological progress. It is shown to be consistent with the following empirical observations: Investment is lumpy and infrequent at the firm level; firms can invest even if they have not reached full capacity and technological progress is largely investment specific. We extend the paper of Pindyck (1988), by introducing embodied technological progress. To produce firms use irreversible capital, perfectly flexible labor, and energy whose price is stochastic. Capital and energy are complementary. We show that uncertainty makes firms to postpone investment, increasing the age of the oldest machine and reducing the proportion of new machines in the total stock of capital. We provide an exercise with tax credit to acquire new machines; it is shown that under the hypothesis of embodiment and uncertainty, the tax credit is not effective.

Sprache
Englisch

Erschienen in
Series: Discussion Paper ; No. 167

Klassifikation
Wirtschaft
Investment; Capital; Intangible Capital; Capacity
Business Fluctuations; Cycles

Ereignis
Geistige Schöpfung
(wer)
de Oliveira Cruz, Bruno
Pommeret, Aude
Ereignis
Veröffentlichung
(wer)
Institute for Applied Economic Research (ipea)
(wo)
Brasília
(wann)
2015

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • de Oliveira Cruz, Bruno
  • Pommeret, Aude
  • Institute for Applied Economic Research (ipea)

Entstanden

  • 2015

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