Editing Fixed capital (section)

==Economic depreciation==
{{further|topic=Economic depreciation|Depreciation (economics)|Capital formation}}
{{About|Depreciation as an economic concept|the concept in Accounting and Finance involving fixed capital goods|Depreciation}}

Depreciation as an economic concept distinguishes between "...the value of the stock of capital assets and the annual value of that asset's services, distinguishing between depreciation and inflation as sources of the change in asset value, and distinguishing between the depreciation in asset values and deterioration in an asset's physical productivity."<ref name="Hulten">Hulten, C. R., & Wykoff, F. C. (1980). The measurement of economic depreciation. Urban Institute. Accessed at [http://econweb.umd.edu/~hulten/webpagefiles/original%20hulten-wykoff%20economic%20depreciation%20study.pdf]</ref> 
Depreciation is the cost of the stock of capital assets allocated over their service lives in proportion to estimates of their service lives, net of maintenance and repair costs.<ref name="Young"/>
{{blockquote|In theory, the service life used in determining the allocation is the physical life-the length of time it is physically possible to use the asset. In some instances, this is longer than the economic life-the length of time it is economically feasible to use the asset. (The service life estimate does not)... reflect the effect of obsolescence. ... (and)... charged when the asset is retired. The reason for this treatment is that obsolescence has little if any effect on the time pattern of services provided by the asset before retirement, even though it is a determinant of the timing of retirement. The charge for obsolescence at retirement writes off the remainder of the asset as a component of capital consumption and in effect replaces the physical life with the economic service life.<ref>{{Cite web|last1=Musgrave|first1=John|last2=Young|first2=Allan|date=March 1980|editor-last=Usher|editor-first=Dan|title=Estimation of Capital Stock in the United States|url=https://core.ac.uk/download/pdf/6852239.pdf|access-date=2021-02-20|website=CORE|publisher=University of Chicago Press}}</ref><ref name="Young"/>}}
Economic depreciation, therefore, is "...the decline in asset price (or shadow price) is due to aging and varies with age"<ref name="Hulten"/> Economic depreciation is also characterized by an " ... age-price relationship in which the largest rate of price decline occurs in the early years of asset life."<ref name="Hulten"/>
The [[depreciation]] write-off permitted for tax purposes may also diverge from that of economic depreciation or "real" depreciation rates. The key factor is the estimate of "economic [[service life]]". Economic depreciation can, however, be estimated with "...sufficient precision to be useful in policy analysis."<ref name="Hulten"/>  
{{blockquote|Economic analysis of growth and production, as well as the distribution of income, requires accurate estimates of capital stocks and of capital income. The estimation of capital stocks in turn requires an estimate of the quantity of capital used up in production, and the estimation of capital income requires an estimate of the corresponding loss in capital value. Thus, even if depreciation policy ignores economic depreciation, we must still try to measure economic depreciation for use in national income and wealth accounting.<ref name="Hulten"/>}}