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Technological Progress, Obsolescence, and Depreciation

Raouf Boucekkine, Fernando del Río and Blanca Martínez
Oxford Economic Papers
New Series, Vol. 61, No. 3 (Jul., 2009), pp. 440-466
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/20529441
Page Count: 27
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Technological Progress, Obsolescence, and Depreciation
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Abstract

We construct a two-sector vintage capital model with neutral and investment-specific technical progress and variable utilization of each vintage. The lifetime of capital goods is endogenous and it relies on the associated maintenance costs. First, we show that the lifetime of capital is an increasing (resp. decreasing) function of the rate of neutral (resp. investment-specific) technical progress. Second, we show that both the use-related depreciation rate and the scrapping rate increase when investment-specific technical progress accelerates. However, the latter drops when neutral technical progress accelerates, while the former remains unaffected. It is also shown that (i) the economic depreciation rate depends on the decline rate of the quality-unadjusted relative price of investment and (ii) the age-related depreciation rate depends on the obsolescence rate.

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