Maintenance Costs, Obsolescence, and Endogenous Growth

Koen G. Berden () and Charles Marrewijk
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Koen G. Berden: Erasmus University Rotterdam

No 01-060/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We analyze the impact of obsolescence of economic inventions by incorporating maintenance costsin the endogenous growth model of expanding product varieties. This contrasts with the existingliterature, which ignores maintenance costs and uses the model of quality improvements todescribe obsolescence. If the maintenance costs become too high, the operating profits becomenegative and the firm stops producing the variety. This diminishes the life span of innovations,thus reducing the return on investment in research and development and the growth rate of theeconomy.

Keywords: endogenous growth; obsolescence; maintenance; innovation; variety (search for similar items in EconPapers)
JEL-codes: F43 O31 O33 O41 (search for similar items in EconPapers)
Date: 2001-06-19
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20010060

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