Capital Adjustment and the Optimal Fuel Choice
This paper analyzes the important, yet often ignored, link between capital adjustment and the choice of fuels used by manufacturing firms. A novel econometric framework, which explicitly incorporates heterogeneous fuel-using capital stocks in the e...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/10/26854337/capital-adjustment-optimal-fuel-choice http://hdl.handle.net/10986/25302 |
| Summary: | This paper analyzes the important, yet
often ignored, link between capital adjustment and the
choice of fuels used by manufacturing firms. A novel
econometric framework, which explicitly incorporates
heterogeneous fuel-using capital stocks in the estimation of
optimal fuel choice, is applied to a large panel of Irish
manufacturing firms. The econometric estimates show a
significant variation in the optimal response of capital to
changing fuel prices across different fuel-using
technologies. For all the technologies, significant costs to
capital adjustment are found. The costs are much larger
compared with earlier estimates of adjustment costs based on
lagged values of output and fuel prices. The findings imply
that the path to full adjustment of capital stocks in
response to changing fuel prices may be much longer than was
previously thought. |
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