Endogenous growth and obsolescence

This paper presents a model of intentional industrial innovation that featu res the endogenous obsolescence of existing capital goods as a result of th e introduction of new capital goods of higher quality. In contrast to exist in models of endogenous obsolescence, the introduction of new capital goods in this model does not immediately result in the displacement of older cap ital goods. Instead, many old capital goods remain in use, albeit less inte nsively than the newer machines. In addition, since the rate at which new c apital goods become obsolete depends on expectations of the rate at which n ew higher quality capital goods are expected to be introduced in the future , this creates the possibility of multiple equilibria, one with high growth rates, in which capital goods quickly become obsolete and another with low growth rates, in which capital goods are used for a long time. (C) 2001 El sevier Science B.V. All rights reserved.