Affiliations: [a] Athens University of Economics and Business, 76
Patission Street, Athens 104 34, Greece
Correspondence:
[*]
Corresponding author: Professor George C. Bitros,
Emeritus, Athens University of Economics and Business, 76 Patission Street,
Athens 104 34, Greece. Tel.: +30 210 8203740; Fax: +30 210 8203301; E-mail:
[email protected]
Abstract: This paper surveys and assesses the empirical literature that bears on the
applicability of the theorem of proportionality, which asserts that depreciation
is proportional to the outstanding capital stock. All available evidence shows
that: a) the rates of depreciation and retirements vary from year to year in
response to changes in conventional economic forces like utilization,
maintenance and repair, the prices of new capital goods, etc., and b) while the
approximation of the distribution of depreciation rates by a single parameter
may be characterized by simplicity and ease of use, at the same time it thwarts
the advances that can be achieved by returning to a general equilibrium model
centered on the time structure of capital and the useful lives of its
components. For this reason, it is concluded that, the sooner this theorem is
replaced by an endogenous theory of depreciation and replacement, the better for
economic theory and policy.
Keywords: Capital longevity, replacement, depreciation, scrappage, maintenance, utilization, obsolescence
