Masked Erosion: Visible Performance and the Hidden Decay of Reproductive Stocks

Abstract

Many systems are judged by fast performance flows although future performance depends on slower reproductive stocks. This paper studies masked erosion, in which output is sustained by hidden use intensity that also depletes the stock. In a population of systems, current performance loads positively on both stock and persistent intensity, while future stock loads positively on stock and negatively on that intensity. We show that the covariance between current performance and future stock crosses zero at a unique horizon: performance is informative before it becomes misleading. Technological change can create or compress this crossing by altering the production-reproduction mapping, while institutions continue to apply rules adapted to the old regime. The resulting mismatch is an aggregate signal failure: local choices may be rational, but no decentralized actor naturally owns the population-level crossover. The framework implies that stock, use intensity, and renewal must be measured separately from current output.