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Why Do Computers Depreciate?

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  • Michael J. Geske
  • Valerie A. Ramey
  • Matthew D. Shapiro

Abstract

The value of installed computers falls rapidly and therefore computers have a very high user cost. The paper provides a complete account of the non-financial user cost of personal computers -- decomposing it into replacement cost change, obsolescence, instantaneous depreciation, and age-related depreciation. The paper uses data on the resale price of computers and a hedonic price index for new computers to achieve this decomposition. Once obsolescence is taken into account, age-related depreciation -- which is often identified as deterioration -- is estimated to be negligible. While the majority of the loss in value of used computers comes from declines in replacement cost, this paper shows the second most important source of decline in value is obsolescence. Obsolescence is accelerated by the decline in replacement cost of computers. Cheaper computing power drives developments in software and networks that make older computers less productive even though their original functionality remains intact.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10831.

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Date of creation: Oct 2004
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Publication status: published as Berndt, Ernst and Charles Hulten (eds.) Hard to Measure Goods and Services: Essays in Honor of Zvi Griliches. Chicago: University of Chicago Press, 2007.
Handle: RePEc:nbr:nberwo:10831

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  1. Mark E. Doms & Wendy F. Dunn & Stephen D. Oliner & Daniel E. Sichel, 2004. "How Fast do Personal Computers Depreciate? Concepts and New Estimates," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 37-80 National Bureau of Economic Research, Inc.
  2. Stephen D. Oliner, 1993. "New evidence on the retirement and depreciation of machine tools," Working Paper Series / Economic Activity Section 147, Board of Governors of the Federal Reserve System (U.S.).
  3. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
  4. Stephen D. Oliner, 1993. "Constant-Quality Price Change , Depreciation, and Retirement of Mainframe Computers," NBER Chapters, in: Price Measurements and Their Uses, pages 19-62 National Bureau of Economic Research, Inc.
  5. Charles R. Hulten, 1996. "Quality Change in Capital Goods and Its Impact on Economic Growth," NBER Working Papers 5569, National Bureau of Economic Research, Inc.
  6. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, pages 63-100 National Bureau of Economic Research, Inc.
  7. Jorgenson, D.W., 1994. "Empirical Studies of Depriciation," Harvard Institute of Economic Research Working Papers 1704, Harvard - Institute of Economic Research.
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Cited by:
  1. Albonico, Alice & Kalyvitis, Sarantis & Pappa, Evi, 2014. "Capital maintenance and depreciation over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 273-286.
  2. Theo S. Eicher & Thomas Strobel, 2008. "Der deutsche Produktivitätsabschwung: Ursachenforschung auf Branchenebene," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(15), pages 33-40, 08.
  3. Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2008. "On the optimal timing of capital taxes," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 692-709, May.
  4. Mirko Draca & Raffaella Sadun & John Van Reenen, 2006. "Productivity and ICT: a review of the evidence," LSE Research Online Documents on Economics 4561, London School of Economics and Political Science, LSE Library.
  5. BOUCEKKINE, Raouf & DEL RIO, Fernando & MARTINEZ, Blanca, 2006. "Technological progress obsolescence and depreciation," CORE Discussion Papers 2006027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Raouf Boucekkine & Blanca Martínez & Fernando del Río, 2005. "Technological Progress And Depreciation," Working Papers. Serie AD 2005-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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