The Allocation of Investment across Vintages of Technology
32 Pages Posted: 18 Sep 2007 Last revised: 16 Feb 2011
Date Written: Feb 14, 2011
Abstract
This paper proposes a new mechanism that explains continued investment in older-vintage technology which rests on complementarity between long-lived and short-lived vintage-specific capital. The main result is a threshold condition that relates the rate of vintage-specific technological progress (ˆq) to two investment patterns: if ˆq is above the threshold, all investment is allocated to the newest-vintage technology; otherwise, firms direct part of their investment to older-vintage technologies. The evidence supports our model’s empirically testable implications: as ˆq declines, investment is allocated more toward older-vintage technology; and equipment-price changes depend on capital’s heterogeneous rates of depreciation.
Keywords: Vintage Growth, Intangible, Heterogeneous Depreciation, Equipment Prices, Knowledge Accumulation, Capital Heterogeneity
JEL Classification: E22, O30, O47
Suggested Citation: Suggested Citation
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