Jerry
-----
In practice, there are indeed price reductions and quality improvements
happening at once, thereby, complicating the firm's decision-making.
However, I would argue, that it is important to distinguish between these
different forms of moral depreciation for analytical reasons since they
deal with different social processes.
Paul
----
I agree that from the standpoint of the individual
firm there are two processes going on - cheapening
of existing equipment/stocks and transformation
of their quality.
At the level of society as a whole there is only
the latter, which produces the former. Cheaper
machines are the result of better machines that
made these machines.
On the other hand, when dealing with the aggregate
national stock of fixed capital, there is just
a depreciation. All the individual causes get lost
in the operation of aggregation, so it just appears
in the national accounts as depreciation.
Mathematically this is very hard to model, since
one is dealing with a system of equations for
which the number of variables is constantly
altering. The number of commodities whose value
you have to track is constantly altering. I know
how to program things like this, but I have only
the slightest indications of how one might model
it analytically/axiomatically.