Maintenance Costs, Obsolescence, and Endogenous Growth

We analyze the impact of obsolescence of economic inventions by incorporating maintenance costs in the endogenous growth model of expanding product varieties. This contrasts with the existing literature, which ignores maintenance costs and uses the model of quality improvements to describe obsolescence. If the maintenance costs become too high, the operating profits become negative and the firm stops producing the variety. This diminishes the life span of innovations, thus reducing the return on investment in research and development and the growth rate of the economy.