Obsolescence and Productivity

Antonio Sampayo and Fernando del Río

No 2005-25, Working Papers from FEDEA

Abstract: In this paper we argue that the increase in the obsolescence costs caused by the adoption of new information technologies, can play an important role in accounting for the productivity slowdown undergone by the US economy after 1974. We develop a standard growth model with physical and intangible capital in which technical progress is embodied in equipment. In this framework, we assume that the obsolescence of intangible capital increases when the embodied technical progress accelerates. The model is calibrated for the period 1957-1973 and the response of the economy to an increase in the rate of embodied technical progress -as observed after 1974- is simulated. We show that the increase in the obsolescence cost caused by the acceleration of embodied technical progress can account for a large part of the productivity slowdown post-1974.

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Journal Article: Obsolescence and productivity (2014)
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