TECHNOLOGICAL PROGRESS AND DEPRECIATION

We construct a vintage capital 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 operation costs. Within this model, we identify the rate of age-related depreciation and the rate of scrapping. We study the properties of the balanced growth paths of the model. 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 age-related depreciation rate and the scrapping rate increase when embodied technical progress accelerates. In contrast, the latter drops when disembodied technical progress accelerates while the former remains unaffected.