American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle
American Economic Review
vol. 108,
no. 9, September 2018
(pp. 2383–2419)
Abstract
This paper studies the business-cycle dynamics of secondary markets for physical capital and their effects on the macroeconomy. In the data, both capital reallocation and the price of used capital are procyclical. To rationalize these facts, I propose a model with endogenous partial irreversibility, where used investment goods are imperfect substitutes for new ones because of firm-level capital specificity. Equilibrium dynamics in the market for used capital induce countercyclical dispersion of marginal products of capital, propagate movements in aggregate TFP and provide a microfoundation for state-dependent non-convex capital adjustment costs.Citation
Lanteri, Andrea. 2018. "The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle." American Economic Review, 108 (9): 2383–2419. DOI: 10.1257/aer.20160131Additional Materials
JEL Classification
- E22 Investment; Capital; Intangible Capital; Capacity
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity