CAPITAL UTILIZATION AND INVESTMENT WHEN CAPITAL DEPRECIATES IN USE - SOME IMPLICATIONS AND TESTS

This paper develops and tests two models of capital utilization and in vestment when capital depreciates in use. I show that there are restri ctions on technology that allow optimality conditions independent of t he capital stock to be found. The optimality conditions are based on t he observation that, if capital depreciates in use; a firm has two way s of acquiring capital-lower utilization or higher investment-and will equate the marginal cost of each. While I am unable to reject the imp lied restrictions on data for one of the models, the parameter estimat es suggest that depreciation-in-use is not an important source of fluc tuations in utilization.