The Allocation of Investment across Vintages of Technology

32 Pages Posted: 18 Sep 2007 Last revised: 16 Feb 2011

See all articles by Osamu Aruga

Osamu Aruga

Secretariat of Intellectual Property Strategy Headquarters; Tokyo Institute of Technology; Government of Japan - Ministry of Education, Culture, Sports, Science and Technology

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

Aruga, Osamu and Aruga, Osamu, The Allocation of Investment across Vintages of Technology (Feb 14, 2011). Available at SSRN: https://ssrn.com/abstract=1015287 or http://dx.doi.org/10.2139/ssrn.1015287

Osamu Aruga (Contact Author)

Secretariat of Intellectual Property Strategy Headquarters ( email )

Japan

Tokyo Institute of Technology ( email )

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Government of Japan - Ministry of Education, Culture, Sports, Science and Technology ( email )

2-5-1 Marunouchi, Chiyoda-ku
Tokyo, 100-8959
Japan

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