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Technological Progress, Obsolescence and Depreciation

  • Raouf, BOUCEKKINE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Fernando, DEL RIO
  • Blanca, MARTINEZ

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 Discussion Papers (ECON - Département des Sciences Economiques) with number 2006015.

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Length: 36
Date of creation: 01 Mar 2006
Date of revision:
Handle: RePEc:ctl:louvec:2006015
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  1. 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.
  2. Gylfason, Thorvaldur & Zoega, Gylfi, 2001. "Obsolescence," CEPR Discussion Papers 2833, C.E.P.R. Discussion Papers.
  3. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, vol. 10(1), pages 54-88, February.
  4. Bruce W Hamilton & Molly Macauley, 1996. "Competition and Car Longevity," Economics Working Paper Archive 361, The Johns Hopkins University,Department of Economics.
  5. Karl Whelan, 2000. "Computers, obsolescence, and productivity," Finance and Economics Discussion Series 2000-06, Board of Governors of the Federal Reserve System (U.S.).
  6. Patrick Musso, 2004. "Productivity Slowdown and Resurgence. The Role of Capital Obsolescence," Revue économique, Presses de Sciences-Po, vol. 55(6), pages 1215-1239.
  7. 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.
  8. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  9. BOUCEKKINE, Raouf & RUIZ-TAMARIT, Ramon, . "Capital maintenance and investment: complements or substitutes?," CORE Discussion Papers RP -1630, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Feldstein, Martin S & Rothschild, Michael, 1974. "Towards an Economic Theory of Replacement Investment," Econometrica, Econometric Society, vol. 42(3), pages 393-423, May.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
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