Estimating capital efficiency schedules within production functions

I estimate capital efficiency schedules within a production function, allowing the data to reveal how the efficiency of capital goods evolves as they age. A parameterized investment stream is used as a capital variable in a production function, and the parameters of the production function are estimated simultaneously with the parameters of the investment stream. Plant-level panel data for steel plants employing a common technology are used to estimate the model. I find that the estimated efficiency schedules appear to follow a geometric pattern, which is consistent with the estimates of economic depreciation of Hulten and Wykoff [1981].