Economics Letters
3. Sep, 2007

A golden rule of depreciation

We derive a Golden Rule for the obsolescence of physical capital. Optimal durability is shown to vary inversely with population growth as well as technological progress. Increased population growth and technological progress accelerate depreciation because providing a rapidly growing and increasingly productive population with highquality capital is costly in terms of consumption forgone. In the long run, the adverse effect of population growth on the level of output per head is reinforced.