Higher Depreciation Rate Research Articles

Has the real rate of return “depreciated”?

AbstractThe average depreciation rate in the United States has increased since the 1970s, a pattern most likely matched in other advanced economies. We argue that a higher depreciation rate has reduced the risk-free interest rate. We do so in a quantitative overlapping-generations model which allows for risk-premia and market power. We show that the importance of the rate of depreciation on the risk-free interest rate depends crucially on the elasticity of intertemporal substitution as well as the size of market power. Our calibrated model shows that higher depreciation plausibly reduced the risk-free rate by 30 basis points over the past half century. We contrast our results with models using a representative-agent framework (Farhi and Gourio in Accounting for macro-finance trends: market power, intangibles, and risk premia. Brookings papers on economic activity, 147, 2019) which typically do not find a role for the rate of depreciation.

Estimation of industry-level basic digital capital services in China: A variable depreciation rate estimation method based on DSGE

Accurately measuring the input of digital capital is of great significance for understanding the development pattern of China's digital economy, nurturing new quality productivity, and achieving high-quality development. However, existing representative studies often assume a constant depreciation rate for capital goods, which does not align with reality. In this paper, we address this limitation by introducing dynamic stochastic general equilibrium (DSGE) model that estimates the variable depreciation rate for each capital good. By setting the depreciation rate as a function of capital maintenance expenditures and utilization rates, we provide a more realistic approach. The empirical results obtained through Monte Carlo simulation demonstrate that the trend of depreciation rates for all types of capital goods aligns with China's economic development. Additionally, we find that investment-specific technology shock plays a significant role in affecting changes in the depreciation rates of capital goods. This shock leads to an increase in capital utilization rates and a decrease in capital maintenance expenditures, resulting in higher depreciation rates. Notably, the depreciation rate of basic digital capital is more sensitive to exogenous shock compared to non-digital capital. Furthermore, the paper estimates the basic digital capital service of 19 industries in China from 1981 to 2020. The results indicate a steady increase in the services provided by basic digital capital, with particularly rapid growth observed in industries such as information transmission, software and information technology services, and the financial sector. When comparing our estimation results with those of representative literature, we find that the national-level productive capital stock and the basic digital capital services estimated using our methodology closely align with existing literature. This validation confirms the effectiveness of our methodology and the reliability of the estimated industry-level basic digital capital services.

Monetary policy and intangible investment

The investment and stock prices of firms with relatively more intangible assets respond less to monetary policy. Similarly, intangible investment responds less to monetary policy compared to tangible investment. These effects are most pronounced among financially constrained firms, indicating that corporate intangible capital weakens the credit channel of monetary policy transmission. The evidence that higher depreciation rates or higher adjustment costs of intangible assets explain these effects is mixed, suggesting a smaller role for these channels.

Delivering blood components through drones: a lean approach to the blood supply chain

ABSTRACT This research explores how drones can improve the blood supply chain (BSC) in the delivery of blood components. This analysis is done considering the lean principles, and the aim is to understand challenges and wastes present in the BSC and map the drone advantages. Through a literature review and the use of in-depth interviews, data is collected from seven BSC experts. Main challenges were identified related to high wastage level, ability to predict demand for blood, low level of centralisation in developing countries, unexpected short-term changes in demand, and sanitary, environmental, and infrastructural risks. Wastes were identified mainly due to improper temperature during transportation, compromising blood bags’ safety, lack of equipment maintenance, leading to higher depreciation rates, and waiting time for the delivery of biomolecular testing results. The use of drones can represent gains in delivery time, allowing a ‘just-in-time’ model of distribution of blood, operating through a ‘pull’ system, reducing the need for inventories and costs.

A two-stage robust approach to integrated station location and rebalancing vehicle service design in bike-sharing systems

A bike-sharing system is a shared mobility mechanism that provides an alternative transportation mode for short trips with almost no added travel speed loss. However, this model’s low usage ratio and high depreciation rate pose a risk to the sustainable development of the bike-sharing industry. Our study proposes a new integrated station location and rebalancing vehicle service design model. This model aims to maximize daily revenue under a given total investment for station locations and bike acquisition. To address demand ambiguity due to possible bias and loss of data, we present a two-stage robust optimization model with a demand-related uncertainty set. The first stage of our model determines the station locations, initial bike inventory, and service areas of rebalancing vehicles. In contrast to the literature, which either simplifies the rebalancing process as an inventory transshipment problem or formulates it as a complex dynamic bike rebalancing problem, we assign each rebalancing vehicle to a service area composed of several specified stations. An approximate maximum travel distance for each rebalancing vehicle is also designed and constrained to ensure that the rebalancing operation can be performed within each period. In the second stage, our model optimizes the daily fleet operation and maximizes the total revenue minus the rebalancing cost. To solve our model, we design a customized row generation approach. Our numerical studies demonstrate that our algorithm can efficiently obtain exact solutions in small instances. For a real-size problem, the nearly optimal solutions of our model also reveal a high-quality worst-case performance with a small loss in mean performance, particularly when the value of the budget ratio (that is, the average number of bikes per station) is at a medium level. Moreover, the distribution of service areas depends on the bike supply and demand level at each station. The optimal fleet rebalancing operation does not have to be confined to one geographical area. Furthermore, our robust model can achieve larger mean and worst-case revenues and a higher revenue stability than a stochastic model with a small data set.

Redevelopment Strategies and Building Ages

An improved real option pricing model that incorporates the depreciation effect for two-stage redevelopment projects will be demonstrated to estimate the redevelopment project values in a wide range of scenarios. Based on a stochastic differential equation, numerical analyses will focus on new factors that influence the expected exercise time, that is, depreciation rate, the annual increase in average building age, building age of the targeted property, and the average building ages in the same region. The depreciation rate is the most influential factor in this model. More importantly, this study will summarize three exercise strategies that cover all combination of the parameters. In some cases, with a low capital return rate, or high depreciation rate, or both, the traditional simultaneous exercise strategy based on the optimal demolition price-to-cost ratio is not feasible. Instead, either a sequential exercise or simultaneous exercise that is based on the optimal rebuilding price-to-cost ratio is the best choice. Detailed procedures on how to adopt the best strategy will be demonstrated. The acquisition price of the old property proved to be sensitive to the depreciation rate and the capital return rate within a certain range. To apply this model properly, the feasible time interval for the traditional simultaneous exercise strategy and the depreciation rate should be estimated accurately.

Kompanijsko pravo dvadeset i prvog veka

Company law, although contractual by its nature, unlike the contract law with low depreciation rate of legal institutes and, in principle, longevity, still has a high depreciation rate and, as a rule, the short duration of its institutes. The reasons for this lie in the fact that the contract law went through "teething troubles" in the previous two centuries, which were marked by major codifications of contract law, as opposed to the company law which is a newer branch of law which was affected by such troubles to a greater extent only in the second half of the twentieth century and it will thus mark to a great extent this, twenty-first century as well. In this paper, the author seeks to predict the main directions of such development of company law in the current (twenty-first) century. It is the understanding of the author that such directions are to be marked by: further strengthening of the institutionality of the company as a legal entity and profiling of legal institutes for protection of this interest and, on that basis, strengthening the so-called system of company social responsability, not only as a policy and moral imperative, but also as a legal category; strenghtening the role of the state regulatory framework in relation to the self-regulatory one with the affirmation of economic freedoms; competition of national regulations and harmonization which is based on that; strengthening civil law institutes in relation to common law institutes in the field of continental law as appropriate to the legal tradition and culture; whithin civil law the takeover of "pure" legal institutes of the Roman or German legal tradition, where they differ, but not mixing them and thus "deteriorating" their nature; seeking the new balance in the relationship between majority capital and minority capital, which prevents the abuse of the majority and the abuse of the minority and which promotes and protects the "interest of a company" as a legal entity; finally, further promoting the principle of arbitrability of intercompany disputes so that the private law will in the choice of the forum for resolving these disputes would be more dominant (prevail) in relation to the public law one.

Dollarization, inflation and foreign exchange markets: A cross‐country analysis

AbstractThis article investigates determinants of deepening dollarization and the relationship between exchange rate and inflation across foreign exchange regimes and degrees of dollarization. To this end, the fixed effect models are adopted using 28 country‐level panel incorporating countries that have experienced dollarization from 1995 to 2016. The overall estimation results show that first, high inflation, less flexible exchange rate movements, the sluggish real economy and the inadequacy of the institutional environments are contributing factors to intensify the dollarization. Secondly, the estimation results using the de‐dollarization country group indicates that real appreciation of the domestic currency is an important factor in mitigating the degree of dollarization while the increasing effects of inflation on dollarization are more pronounced in the dollarized economies. Finally, high dollarization or a high depreciation rate of the domestic currency tends to increase inflation, and those effects are found to have more significant in the dollarized economies, while real depreciation is a factor contributing to lowering inflation.

Monetary Policy and Intangible Investment

We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.

Optimal timing and capacity choice with taxes and subsidies under uncertainty

We develop a real options model that examines the effect of government’s subsidies and taxation policy on the timing and size of investments. We find that a higher depreciation rate or subsidy, or a lower tax rate, accelerates investments. The effect of subsidies on the investment size depends on whether the subsidy is fixed or variable: a fixed subsidy induces smaller size investments, whereas a variable subsidy encourages larger size investments. The tax and depreciation rates do not affect the size of the investment. For revenue-neutral incentive packages, the effect of changes in the above variables on the investment timing and size is not necessarily monotonic and it depends on the instrument of the tax-subsidy policy that is used to keep the new policy revenue neutral. There are also economic contexts in which an increase in the tax rate can accelerate investments of a larger scale.

Management of capital assets of construction organizations

The most significant part of the assets of the enterprise are fixed assets, which are on the balance sheet of the enterprise and are in operation, in reserve, on preservation, as well as leased to other enterprises.The study of these issues is necessary for all firms and enterprises facing the problem of maintaining the accounting policy of fixed assets and their depreciation. Choosing the right and optimal accounting policies for fixed assets and depreciation greatly helps the enterprise to minimize taxes and speed up the process of updating the equipment fleet. This article focuses on accelerated depreciation methods. Any enterprise is interested in maintaining such accounting policy, in which during the first years of operations with the fixed assets are written off by a high depreciation rate. The implementation of such a policy reduces taxable profits and accelerates the renewal of fixed assets, which is especially important now, with rapid progress in science and technology.The results of the analysis of the fixed assets of the construction organization showed the need to improve their accounting. The development of accounting policies of a modern construction organization can largely determine the improvement of management in a market economy.

Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital

We add endogenous labour supply to exogenous population growth in an Uzawa-Lucas endogenous growth model with international capital movements. Under non-linearity from a decreasing marginal product of labour in education and a positive human capital externality in output production, a combination of an estimated debt-interest relation and a realistic calibration of the model shows the following. (i) The demographic dividends from a fall in the population growth rate increase welfare in the short run and reduce it in the long run. (ii) A higher (lower) growth rate of the dependency ratio leads to a higher (lower) optimal level of education and technical change. (iii) Lower past cumulated savings lead to a higher foreign-debt/GDP ratio, higher interest rates, more education time and technical change, and more consumption in the future rather than the present. (iv) A higher depreciation rate of human capital through ageing has a stronger impact on growth rates than all other variables that could be associated with ageing and a good mitigating policy is to spend more time on education.

Monetary Policy and Intangible Investment

We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.

Reaping what we sow: Investment trends and the future

Abstract Increasing investment is often recommended as a prescription for increasing productivity, stoking demand, and addressing other causes of low growth or prospective crises in the U.S. economy. Yet an examination of investment suggests that it is not poised to fill this role. Private sector investment has undergone a slow transformation, shifting from structures and equipment investment, with the latter enjoying a long trend of falling prices, to a rising role for intellectual property, software, and other intangible capital. The high depreciation rate associated with this new capital imposes a drag on net investment and hence on capital accumulation. Public investment remains mostly focused on infrastructure but has fallen in half as a share of GDP since its peak in the 1950s. These trends emphasize the potential importance of new types of private capital and their implications for growth, as well as the declining role of public investment, including federal R&D.

Determinants of Dividend Policy by Information Technology (IT) Firms in the United States

This paper examines the determinants of dividend payout policy of seventy publicly traded information technology (IT) firms in the United States in 2017. More important, the standard dividend payout ratio is adjusted to include depreciation because IT firms have higher depreciation than the services sector. Thus, this higher depreciation rates may have an impact on dividend payouts by IT firms. To find out the determinants of dividend payout policy, general linear models (GLM) were estimated using for standard dividend payout and the adjusted dividend payout as the dependent variables. In the standard dividend payout regression, corporate tax and the market to book ratio have a positive relationship with the dividend payout. Operating cash flow, corporate profit, debt to equity ratio, size and sales has a negative relationship with dividend payout. Finally, the regression for the adjusted standard dividend payout showed the corporate tax, operating cash flows, profit and the market to book ratio have a positive relationship with the adjusted dividend payout. Debt to equity ratio, size, and sales has a negative relationship with adjusted dividend payout.

Music Consumption Decisions with Non-Durable Streaming Options

Consumers are increasingly purchasing non-durable music products, consumed through a streaming bundle delivered via a subscription model. In this paper we examine how individual preferences influence a consumer's music format decision. We analyze consumption differences between durable retail music products and non-durable streaming music subscription bundles. A user's preferred format depend on the intensity of their music interests, scope of interests, and how quickly a song's utility depreciates. Our empirical analysis shows that streaming consumers have greater depreciation rates than the traditional distribution of terrestrial radio, and that digital sales decline at a slower rate than does the usage of the streaming version. Our theory model and empirical evidence suggest that consumers prefer a non-durable subscription over a durable purchase of information goods when they have higher depreciation rates or a greater scope of music interests. Using simulation, we identify the ideal consumption format for consumers based on their individual listening preferences.

The Fiscal Stimulus of 2009–2010: Trade Openness, Fiscal Space, and Exchange Rate Adjustment

The global crisis of 2008–2009 focused attention on the role of fi scal policy at times of collapsing aggregate demand. Concerns about experiencing a reincarnation of the great depression induced the Organization for Economic Cooperation and Development (OECD) (highincome group) and emerging market countries to invoke extraordinary policies for extraordinary times. Countries adopted sizable fi scal stimuli, augmented by unprecedented monetary expansions supported by elastic swap lines between the Federal Reserve and the European Central Bank, and between the Fed and four emerging markets. The fl ight to quality and the shortage of dollar liquidity posed a special challenge for emerging markets, inducing them to supplement these policies with both large sales of foreign currencies at the height of the crisis and with sizable depreciations. Yet there has been a remarkable heterogeneity in the magnitudes of the fi scal stimuli, and of the exchange rate depreciation. The differential patterns of response are traced in table 1, summarizing the fi scal stimulus/GDP and the depreciation rate in 32 countries, chosen by data availability. The fi rst three columns overview the crisis related fi scal stimulus / GDP, 2009–2011, in OECD countries and emerging markets. The crisis led to a signifi cant fi scal stimulus in the United States, Japan, and Germany, the magnitude of which increased from 2009 to 2010, refl ecting various lags associated with fi scal policy. The fourth and the fi fth columns report the massive “bailout” transfers to the banking system in the United States, Germany, and the United Kingdom that attempted to stabilize the fi nancial panic. It is noteworthy that the size of

Transitional Dynamics in a Tullock Contest with a General Cost Function

This paper constructs and analyzes open-loop equilibria in an infinitely repeated Tullock contest in which two contestants contribute efforts to accumulate individual asset stocks over time. To investigate the transitional dynamics of the contest in the case of a general cost function, we linearize the model around the steady state. Our analysis shows that optimal asset stocks and their speed of convergence to the steady state crucially depend on the elasticity of marginal effort costs, the discount factor and the depreciation rate. In the case of a cost function with a constant elasticity of marginal costs, a lower discount factor, a higher depreciation rate and a lower elasticity imply a higher speed of convergence to the steady state. We further analyze the effects of second prizes in the contest. A higher prize spread increases individual and aggregate asset stocks, but does not alter the balance of the contest in the long run. During the transition, a higher prize spread increases asset stocks, produces a more balanced contest in each period and increases the speed of convergence to the steady state.

Transitional Dynamics in a Tullock Contest with a General Cost Function

This paper models an infinitely repeated Tullock contest in which two contestants contribute efforts to accumulate individual asset stocks over time. To investigate the transitional dynamics of the contest in the case of a general cost function, we linearize the model around the steady state. Our analysis shows that optimal asset stocks and their speed of convergence to the steady state crucially depend on the elasticity of marginal effort costs, the discount factor and the depreciation rate. We further analyze the effects of second prizes in the transition to the steady state as well as in the steady state itself. For a cost function with a constant elasticity of marginal costs, a lower discount factor, a higher depreciation rate and a lower elasticity imply a higher speed of convergence to the steady state. Moreover, a higher prize spread increases individual and aggregate asset stocks, but does not alter the balance of the contest in the long run. During the transition, a higher prize spread increases asset stocks and produces a more balanced contest in each period. Finally, a higher prize spread increases the speed of convergence to the steady state.

Modelling Investment When Relative Prices are Trending: Theory and Evidence for the United Kingdom

In recent work, Stacey Tevlin and Karl Whelan argue that aggregate econometric models fail to capture the US investment boom in plant and machinery in the second half of the 1990s, whereas a disaggregated approach does much better. In particular, they show that aggregate models do not capture the increase in replacement investment associated with compositional shifts in the capital stock towards high depreciation rate assets, such as computers. And aggregate models invariably find little or no role for the real user cost, so do not pick up the strong effects of relative price declines on investment in computers. In this paper, a data set for the United Kingdom is constructed in order to investigate the ability of different equations to account for the UK boom in plant and machinery investment in the second half of the 1990s. The findings are similar to those of Tevlin and Whelan, whose analysis is extended in two main ways. First, the failure of the aggregate equations is explained more formally in terms of misspecification when relative prices are trending downwards. Second, the econometric analysis is conducted in a formal cointegration framework. As in the United States, the paper shows that asset-level equations can explain the investment boom in plant and machinery in the second half of the 1990s in the United Kingdom, whereas the aggregate equation fails completely.