The purpose of vintage growth theory is to take account of the fact that new plant will generally be much more effective than old. In Chapters 1 and 2, capital was regarded as a homogeneous factor of production with a quantity of K, a rate of growth of k, and a marginal product of ∂Y/∂K. This failed to distinguish new plant from old — for both were simply regarded as part of the same capital stock, with the same marginal products, etc. If new plant is really much more effective than old, partly because it embodies a proportion of the technical advances which are made, and partly because it has had less time to deteriorate with use, it will be worth complicating the theory of the productive process to take this into account. It is taken into account by regarding plant produced in separate years as separate parts of the capital stock with different costs, productivities, etc. The effectiveness of plant will then depend upon the year in which it was produced, i.e. upon its ‘vintage’.
KeywordsLabour Productivity Capital Stock Capital Cost National Income Technical Progress
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- 1.David Ricardo, The Principles of Political Economy and Taxation (London, 1817); reprinted P. Sraffa (ed.), Works (Cambridge U.P. 1951) vol. I, chap. 2.Google Scholar
- 1.See R. C. O. Matthews, ‘The new view of investment: Comment’, Quarterly Journal of Economics, vol. LXXVIII (Feb 1964).Google Scholar
- 1.These results are less complex than those of C. J. Bliss, ‘On putty-clay’, Review of Economic Studies, vol. xxxv (Apr 1968), and Pranab Bardhan, ‘Equilibrium growth in a model with economic obsolescence of machines’, Quarterly Journal of Economics, vol. Lxxxiii (May 1969), largely because it is assumed that the production function with new plant takes the algebraic CES form, while they use a more general form of the production function.Google Scholar