A Micro-Econometric Model of Capital Utilization and Retirement: The Case of the U.S. Cement Industry

Abstract

The paper presents a micro-econometric model of capital utilization and retirement. Estimates of a firm's discrete decision problem with regard to an existing piece of capital—whether to operate, hold idle or retire it—are obtained, in the context of the U.S. cement industry, by solving a discrete-choice stochastic dynamic programming model. The estimates are then used to simulate the effects of product and input price changes, and changes in the size and age of a cement kiln on a firm's propensity to operate, hold idle and retire a kiln.