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Oxford Economic Papers Advance Access originally published online on May 28, 2008
Oxford Economic Papers 2009 61(3):440-466; doi:10.1093/oep/gpn016
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© Oxford University Press 2008 All rights reserved

Technological progress, obsolescence, and depreciation

Raouf Boucekkine*, Fernando del Río{dagger}, and Blanca Martínez{ddagger}

*CORE, Department of Economics, Université Catholique de Louvain and University of Glasgow
{dagger}Departamento de Fundamentos da Análise Económica, Facultade CC. Económicas e Empresariais, Avda. Xoan XXIII s/n, Universidade de Santiago de Compostela, Santiago de Compostela, Spain; e-mail: aedelrio{at}usc.es
{ddagger}Universidad Complutense de Madrid

JEL classifications: E22, E32, O40


  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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