The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle

Journal Article

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.

Duke Authors

Cited Authors

  • Lanteri, A

Published Date

  • September 2018

Published In

  • American Economic Review

Volume / Issue

  • 108 / 9

Start / End Page

  • 2383 - 2419