Chapter

Why Do Computers Depreciate?

Michael J. Geske, Valerie A. Ramey and Matthew D. Shapiro

in Hard-to-Measure Goods and Services

Published by University of Chicago Press

Published in print November 2007 | ISBN: 9780226044491
Published online February 2013 | e-ISBN: 9780226044507 | DOI: http://dx.doi.org/10.7208/chicago/9780226044507.003.0006
Why Do Computers Depreciate?

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This chapter addresses the question of why computers lose their economic value so quickly. Data was gathered on the characteristics of over 3,000 computers, including the new and used price, detailed features of the computer, and age. By linking the ratio of the used and new price of the computer to observable characteristics, key components of the user cost of installed computers were estimated. The typical computer, when it is sold, has experienced about a 77 percent decline in value compared to its price when new. About half of this decline in value can be accounted for by the decline in replacement cost of computers of constant quality. That is, even if nothing intrinsic has happened to the computer, it can be replaced at much lower cost. What accounts for the remaining decline in the value of this computer? The chapter shows that obsolescence accounts for most of the remaining decline.

Keywords: computers; economic value; depreciation; prices; user cost; replacement cost; obsolescence

Chapter.  12827 words. 

Subjects: Microeconomics

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