Markovian depreciation

This paper uses contemporary developments in capital theory to formulate the depreciation, or wasting, of assets as a Markov process. In conformity with previous literature, the initial formulation is in discrete time. Taking limits, however, shows that in continuous time the wasting of assets can be modelled as a log-gamma distribution. The log-gamma density is related to both the chi-square and Poisson distributions. This has important implications for capital budgeting, insurance, and growth theory among other areas.