Implications of Geometric Cohort Depreciation for Service-Life Distributions (PDF)

This paper decomposes cohort-level Geometric depreciation into a weighted average of individual non-Geometric forms. The individual forms are general enough to represent actual individual depreciation patterns adequately, and the weights on individuals resemble Gamma service-life densities under most circumstances. Researchers with a knowledge of used assets' retirement patterns, but not prices, could use the Gamma parameters to estimate the features of (stipulated) Geometric cohort depreciation. One of the individual forms, weighted appropriately, could smoothly replace Geometric depreciation when the rate of return is negative. The analysis also offers support for faster depreciation rates for structures assets in the National Income and Product Accounts.

Brian Sliker