Vintage capital and the diffusion of clean technologies

Abstract

We develop a general equilibrium vintage capital model with energy‐saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy‐consuming and scrapping is endogenous. Two polar market structures are considered for the energy market: free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However, in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.

What Remains of Cross-Country Convergence?

“…They represent the idea that initial conditions have no implications for a country's per capita income level in the long-run by saying that two countries converge if the current long-run forecasts of their log per capita income levels are equal. 22 That is, if , so that convergence can be thought of as "catching up" also in the time series context. As definition (4) implies the absence of stochastic or deterministic trends in the cross-country difference of log per capita income levels, convergence has often been tested in the time series context by testing the stationarity of that difference.…”

Assessing energy price induced improvements in efficiency of capital in OECD manufacturing industries

“…In the energy and environmental economics literature, vintage capital models have been intensively used mainly in the context of understanding the properties of embodied energy-saving technological progress. Recent contributions include Meijers (1994), Mulder et al (2003), Hart (2004), Pérez-Barahona and Zou (2006), and Azomahou et al (2012).…”