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Technological Progress, Obsolescence and Depreciation

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Author Info
Raouf, BOUCEKKINE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
Fernando, DEL RIO
Blanca, MARTINEZ

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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, Département des Sciences Economiques in its series Université catholique de Louvain, Département des Sciences Economiques Working Paper with number 2006015.

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Length: 36
Date of creation: 16 Mar 2006
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Handle: RePEc:ctl:louvec:2006015

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Related research
Keywords: Vintage capital operation costs embodied technical progress age-related depreciation obsolescence

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, vol. 10(1), pages 54-88, February. [Downloadable!] (restricted)
  2. Michael J. Geske & Valerie A. Ramey & Matthew D. Shapiro, 2004. "Why Do Computers Depreciate?," NBER Working Papers 10831, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Boucekkine, Raouf, et al, 1998. " Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-84, December. [Downloadable!] (restricted)
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  7. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  8. Gylfason, Thorvaldur & Zoega, Gylfi, 2001. "Obsolescence," CEPR Discussion Papers 2833, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Karl Whelan, 2002. "Computers, Obsolescence, And Productivity," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 445-461, August. [Downloadable!] (restricted)
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  11. BOUCEKKINE, Raouf & RUIZ-TAMARIT Ramon, 2001. "Capital Maintenance and Investment : Complements or Substitutes ?," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2001012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  12. Bischoff, Charles W & Kokkelenberg, Edward C, 1987. "Capacity Utilization and Depreciation-in-Use," Applied Economics, Taylor and Francis Journals, vol. 19(8), pages 995-1007, August.
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