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The economic theory of obsolescence A vintage model Ever since the pioneering article by Bowie (1982), the issue of depreciation has attracted growing attention in the UK commercial property market. This paper revisits the issue, from the perspective of what economic theory has to tell us about obsolescence, before embarking on an empirical case study of the Central London office market. The chosen theoretical approach is based on the "vintage model" of investment developed by Salter (1966) in his seminal study of "Productivity and technical change". This theoretical framework provides a conceptual framework for the analysis, and some working hypotheses to test.The first point to note is that once an investment in capital goods has been made, they have no present cost. They are "the gift of the past", just as natural resources are "the gift of nature" (Salter, 1966, p. 61). The determinants of the economic life of installed capital goods are then purely the labour and materials costs of their operation compared to the price of the goods they produce. Once they no longer generate a surplus over operating costs, they become economically obsolete and are due for scrapping. Here the concept of economic obsolescence should be distinguished from that of physical deterioration. The former occurs at the point when capital goods can no longer be operated profitably. The latter involves the continuous process of "wear and tear", which can be accounted for by an additional component of the operating costs allocated to repair and maintenance.In Salter's vintage model, the process of obsolescence operates as follows (Figure 1). Each investment in new capital is assumed to embody an improved technique of production, which lowers the unit operating costs of successive vintages. The criterion for investment is that the present value of the surpluses generated by the capital goods over their economic life should be sufficient to cover the cost of the investment and pay a "normal" rate of profit. On this basis, the volume of investment in the latest technique is such as to replace those vintages which are being scrapped, and to expand overall output to the point at which its existing price p t is lowered to a new price p t+1 sufficient to eliminate the possibility of earning super-profits on the investment. With this price