The market for used capital: Endogenous irreversibility and reallocation over the business cycle


Scholarly Edition

© 2018 American Economic Association. All rights reserved. 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 nonconvex capital adjustment costs.

Full Text

Duke Authors

Cited Authors

  • Lanteri, A

Published Date

  • September 1, 2018

Start / End Page

  • 2383 - 2419

Digital Object Identifier (DOI)

  • 10.1257/aer.20160131

Citation Source

  • Scopus