Atlantic Economic Journal

, Volume 29, Issue 2, pp 121–134 | Cite as

Endogenous capital utilization in a neoclassical growth model

  • Beatriz Rumbos
  • Leonardo Auernheimer


This paper introduces a variable rate of capital utilization and depreciation into a modified Ramsey-type neoclassical growth model via the well-known concept of pure user cost. The optimal utilization rate is found to be determined by the opportunity cost of holding capital or the net real interest rate. As a consequence, this rate may vary in the short run, so total services of capital become a control rather than a state variable. Furthermore, the introduction of a variable utilization rate yields a slower rate of convergence toward the steady state, inducing more persistence in the transitional dynamics. To illustrate how the endogenous choice of utilization acts on the system, some simulations are carried out, including the transition period when there is a temporary fall in the exogenous real interest rate.


International Economic Opportunity Cost Public Finance Variable Rate Transition Period 
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Copyright information

© International Atlantic Economic Society 2001

Authors and Affiliations

  • Beatriz Rumbos
    • 1
  • Leonardo Auernheimer
    • 2
  1. 1.Instituto Tecnológico Autónomo de MéxicoMexico
  2. 2.Texas A&M UniversityU.S.A.

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