ABSTRACT
This chapter 1 proposes a vintage capital model under energy price uncertainty. Energy saving technical progress is embodied and makes new capital less energy consuming. Firms invest not only to expand capacity but also to replace old machines. Scrapping is then endogenous and stochastic. In this setting, uncertainty on energy price may increase the optimal age of the machines in use and postpone capacity expansion and replacement. Investment dynamics may exhibit lumpiness. The so-called cleansing effect of recessions appears since the firm stop using some old machines for bad realizations of the stochastic process.
