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Technology and the Theory of Vintage Aggregation

Technology and the Theory of Vintage Aggregation

(p.99) 4 Technology and the Theory of Vintage Aggregation
Hard-to-Measure Goods and Services
Michael J. Harper
University of Chicago Press

This chapter reexamines a well-known and conceptually difficult aspect of the vintage asset problem: the aggregation of different technological vintages of capital. The chapter is organized as follows. Section 4.2 reviews relevant material on models of production, capital measurement, and quality adjustment. Section 4.3 develops a “model of production with machines”, in which the Solow vintage model is extended to individual machines. This machine model permits clearer definitions of key concepts such as deterioration and embodied and disembodied technical change. The machine model predicts that older vintages are preferentially discarded during a cyclical downturn. This realistic behavior is inconsistent with what is assumed in capital stock calculations. Section 4.4 examines the machine model in nominal terms. Section 4.5 considers the idea of real capital input. The machine model is used to clarify previous discussions of what the marginal product of capital is—the added output obtained from a collection of machines by adding one machine (not a machine hour) and without adding any labor. Section 4.6 discusses how quality adjustments to capital inputs could be overstated.

Keywords:   production, capital measurement, quality adjustment, Solow vintage model, machine model, capital inputs

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