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Depreciation, Deterioration and Obsolescence when there is Embodied or Disembodied Technical Change

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  • Diewert, W. Erwin
  • Wykoff, Frank C.

Abstract

The paper considers how to measure capital in a model where technical progress is either embodied in new units of capital or it is "disembodied" and simply causes the price of capital services to fall. The disembodied case is considered in sections 2-4. Sections 2 and 3 set out standard vintage capital aggregation models when there is no embodied technical progress. Section 4 discusses disembodied obsolescence in more detail. Section 5 introduces new (more efficient) models of the capital good so that technical progress is embodied in the new models. Section 6 shows how the parameters in the Jorgenson model of capital services could be estimated by statistical agencies if their investment surveys covered sales and retirements of used assets as well as purchases of new assets. Section 7 concludes.

Suggested Citation

  • Diewert, W. Erwin & Wykoff, Frank C., 2006. "Depreciation, Deterioration and Obsolescence when there is Embodied or Disembodied Technical Change," Economics working papers diewert-06-11-23-08-38-56, Vancouver School of Economics, revised 13 Jul 2007.
    • Handle: RePEc:ubc:bricol:diewert-06-11-23-08-38-56
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    References listed on IDEAS

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    1. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May.
    2. Hulten, Charles R & Wykoff, Frank C, 1996. "Issues in the Measurement of Economic Depreciation: Introductory Remarks," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 10-23, January.
    3. Triplett, Jack E, 1996. "Depreciation in Production Analysis and in Income and Wealth Accounts: Resolution of an Old Debate," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 93-115, January.
    4. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538, National Bureau of Economic Research, Inc.
    5. Usher, Dan (ed.), 1980. "The Measurement of Capital," National Bureau of Economic Research Books, University of Chicago Press, number 9780226843001.
    6. Laurits R. Christensen & Dale W. Jorgenson, 1969. "The Measurement Of U.S. Real Capital Input, 1929–1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
    7. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
    8. Laurits R. Christensen & Dale Jorgenson, 1973. "Measuring Economic Performance in the Private Sector," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 233-351, National Bureau of Economic Research, Inc.
    9. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 249-283.
    10. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-980, September.
    11. Bellerby, J.R. & Mujumdar, N.A., 1961. "Agricultural Economic Theory and the Indian Economy," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 16(3), pages 1-4.
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    Cited by:

    1. Brian Sliker, 2018. "Implications of Geometric Cohort Depreciation for Service-Life Distributions," BEA Working Papers 0155, Bureau of Economic Analysis.
    2. W. Erwin Diewert, 2009. "Durables and Owner-Occupied Housing in a Consumer Price Index," NBER Chapters, in: Price Index Concepts and Measurement, pages 445-500, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Aggregation of Capital; embodiment of technical progress; depreciation; deterioration; obsolescence; index number theory;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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