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Maintenance Costs, Obsolescence, and Endogenous Growth

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  • Koen G. Berden

    ()
    (Erasmus University Rotterdam)

  • Charles van Marrewijk

    ()
    (Erasmus University Rotterdam)

Abstract

We analyze the impact of obsolescence of economic inventions by incorporating maintenance costsin the endogenous growth model of expanding product varieties. This contrasts with the existingliterature, which ignores maintenance costs and uses the model of quality improvements todescribe obsolescence. If the maintenance costs become too high, the operating profits becomenegative and the firm stops producing the variety. This diminishes the life span of innovations,thus reducing the return on investment in research and development and the growth rate of theeconomy.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-060/2.

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Date of creation: 19 Jun 2001
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Handle: RePEc:dgr:uvatin:20010060

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Web page: http://www.tinbergen.nl

Related research

Keywords: endogenous growth; obsolescence; maintenance; innovation; variety;

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References

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  1. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Funke, Michael & Strulik, Holger, 2000. "On endogenous growth with physical capital, human capital and product variety," European Economic Review, Elsevier, vol. 44(3), pages 491-515, March.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  4. Sergio T. Rebelo, 1992. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  6. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  7. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  8. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-75, July.
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Cited by:
  1. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.
  2. Charles van Marrewijk & Koen Berden, 2004. "On the Static and Dynamic Costs of Trade Restrictions," School of Economics Working Papers 2004-06, University of Adelaide, School of Economics.

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