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An Econometric Analysis of Automobile Scrappage

Author

Listed:
  • Charles F. Manski

    (University of Wisconsin, Madison, Wisconsin)

  • Ephraim Goldin

    (The Bank of Israel, Jerusalem, Israel)

Abstract

It has been suggested that a used car is scrapped when its price net of repair costs falls below its scrap value. This simple hypothesis captures the essence of the important idea that the life spans of durable goods are determined by both economic and technical considerations. We present empirical evidence based on an explicit econometric model of the scrappage decision. Analyzing make-model-vintage specific scrappage rates in Israel for 1979, we find that the hypothesized inverse relationship between price and scrappage probability exists and is of striking magnitude. This finding, when combined with the fact that new car prices in Israel are almost triple CIF prices, may explain why the median life expectancy of a vehicle in Israel is so much longer than that of a similar vehicle in Western Europe or the United States.

Suggested Citation

  • Charles F. Manski & Ephraim Goldin, 1983. "An Econometric Analysis of Automobile Scrappage," Transportation Science, INFORMS, vol. 17(4), pages 365-375, November.
    • Handle: RePEc:inm:ortrsc:v:17:y:1983:i:4:p:365-375
    DOI: 10.1287/trsc.17.4.365
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    Cited by:

    1. David A. Hensher, 1987. "Automobile Loss Rates and the Expected Capital Cost of Vehicles: An Empirical Note," The Economic Record, The Economic Society of Australia, vol. 63(3), pages 247-254, September.
    2. Hsu, Shi-Ling & Sperling, Daniel, 1994. "Uncertain Air Quality Impacts of Automobile Retirement Programs," University of California Transportation Center, Working Papers qt9hk939jn, University of California Transportation Center.
    3. Johannes Mauritzen, 2014. "Scrapping a Wind Turbine: Policy Changes, Scrapping Incentives and Why Wind Turbines in Good Locations Get Scrapped First," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    4. Shanjun Li & Christopher Timmins & Roger H. von Haefen, 2009. "How Do Gasoline Prices Affect Fleet Fuel Economy?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 113-137, August.
    5. Mauritzen, Johannes, 2011. "The Decision to Scrap a Wind Turbine: Opportunity Cost, Timing and Policy," Discussion Papers 2011/17, Norwegian School of Economics, Department of Business and Management Science.
    6. Alberini, Anna & Harrington, Winston & McConnell, Virginia D., 1998. "Fleet Turnover and Old Car Scrap Policies," Discussion Papers 10897, Resources for the Future.

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