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Technological progress, obsolescence, and depreciation

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  • BOUCEKKINE, Raouf
  • DEL RIO, Fernando
  • MARTINEZ, Blanca

Abstract

We construct a vintage capital model à la Whelan (2002) with both exogenous embodied and disembodied technical progress, and variable utilization of each vintage. The lifetime of capital goods is endogenous and it relies on the associated maintenance costs. We study the properties of the balanced growth paths. First, we show that the lifetime of capital is an increasing (resp. decreasing) function of the rate of disembodied (resp.embodied) technical progress. Second, we show that both the use-related depreciation rate and the scrapping rate incease when embodied technical progress accelerates. However, the latter drops when disembodied technical progress accelerates while the former remains unaffected. A key feature of our model is that the age-related depreciation rate does depend on the obsolescence rate in sharp contrast to the neoclassical model.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2116.

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Handle: RePEc:cor:louvrp:-2116

Note: In : Oxford Economic Papers, 61, 440-466, 2009
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  1. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, vol. 63(251), pages 495-512, August.
  2. R. Boucekkine & M. Germain & O. Licandro & A. Magnus, . "Creative destruction, investment volatility, and the average age of capital," Working Papers 97-08, FEDEA.
  3. Epstein, L. & Denny, M., 1980. "Endogenous capital utilization in a short-run production model : Theory and an empiral application," Journal of Econometrics, Elsevier, vol. 12(2), pages 189-207, February.
  4. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  5. Karl Whelan, 2002. "Computers, Obsolescence, And Productivity," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 445-461, August.
  6. Michael J. Geske & Valerie A. Ramey & Matthew D. Shapiro, 2007. "Why Do Computers Depreciate?," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 121-150 National Bureau of Economic Research, Inc.
  7. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, vol. 10(1), pages 54-88, February.
  8. BOUCEKKINE, Raouf & RUIZ-TAMARIT Ramon, 2001. "Capital Maintenance and Investment : Complements or Substitutes ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
  10. Bruce W Hamilton & Molly Macauley, 1996. "Competition and Car Longevity," Economics Working Paper Archive 361, The Johns Hopkins University,Department of Economics.
  11. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  12. Gylfason, Thorvaldur & Zoega, Gylfi, 2001. "Obsolescence," CEPR Discussion Papers 2833, C.E.P.R. Discussion Papers.
  13. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
  14. Patrick Musso, 2004. "Productivity Slowdown and Resurgence. The Role of Capital Obsolescence," Revue économique, Presses de Sciences-Po, vol. 55(6), pages 1215-1239.
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Cited by:
  1. Luis Puch & Antonia Díaz, 2012. "A Theory of Energy Use," 2012 Meeting Papers 802, Society for Economic Dynamics.
  2. Th�ophile T. Azomahou & Raouf Boucekkine & Phu Nguyen-Van, 2008. "Promoting clean technologies: The energy market structure crucially matters," Working Papers 15, Development and Policies Research Center (DEPOCEN), Vietnam.
  3. Motamedi, N. & Reza Peyghami, M. & Hadizadeh, M., 2013. "A mixed integer nonlinear programming model for the optimal repair–replacement in the firm," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 366-371.
  4. Boucekkine, R. & Fabbri, G. & Gozzi, F., 2010. "Maintenance and investment: Complements or substitutes? A reappraisal," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2420-2439, December.
  5. Fabbri, Giorgio & Gozzi, Fausto, 2006. "Vintage Capital in the AK growth model: a Dynamic Programming approach. Extended version," MPRA Paper 7334, University Library of Munich, Germany.
  6. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, 2011. "Real Business Cycles with Capital Maintenance," Quaderni di Dipartimento 147, University of Pavia, Department of Economics and Quantitative Methods.
  7. Théophile T. Azomahou & Raouf Boucekkine & Phu Nguyen-Vanc, 2009. "Promoting clean technologies under imperfect competition," Working Papers 2009_06, Business School - Economics, University of Glasgow.
  8. George Bitros, 2010. "The theorem of proportionality in contemporary capital theory: An assessment of its conceptual foundations," The Review of Austrian Economics, Springer, vol. 23(4), pages 367-401, December.
  9. del Rio, Fernando, 2010. "Investment-specific technical progress, capital obsolescence and job creation," Labour Economics, Elsevier, vol. 17(1), pages 248-257, January.
  10. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, . "Capital Maintenance and Depreciation over the Business Cycle," DEOS Working Papers 1326, Athens University of Economics and Business.
  11. Nicholas Apergis & John Sorros, 2013. "The role of fixed capital depreciations for TFP growth: evidence from firm level panel data estimates," Journal of Economics and Finance, Springer, vol. 37(4), pages 606-621, October.

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