TECHNICAL PROGRAESS AND INVESTMENT: A VINTAGE MODEL*

The main purpose of this paper is to investigate the optimal investment decision of the firm with a vintage production function. First, the optimal conditions for the investment and replacement permitting jumps in the state variables are derived. Second the effects of exogenous parameters on investment are examined and the following new results are obtained: (1) whether a rise in the current money wage increases or decreases investment depends crucially on the time profile of the existing plants; (2) a rise in the rate of technical progress reduces investment.