Abstract
This study formulates a Markov vintage model, which expresses the transition dynamics of the stock of infrastructure dependent on the infrastructure investment and life-extension investment. With this Markov vintage model, this study formulates a dynamic infrastructure investment model, which gives a normative infrastructure investment policy to maximize the social welfare, taking account of the resource constraint in the macro economy and the contribution of infrastructures to the economic activities. Analyzing the optimal investment policy, this study shows that life-extension investment of infrastructure brings two kinds of economic benefits: stock effect and leveling effect. Stock effect is the benefit to increase the longrun household consumption level. Leveling effect is the benefit to level off the burden of infrastructure renewal cost between generations. Besides, this study considers the properties of the optimal policy of infrastructure investment and life-extension investment through numerical analysis.
