Why Do Computers Depreciate? / Michael J. Geske, Valerie A. Ramey, Matthew D. Shapiro.

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Geske, Michael J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10831.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data • Data Access
O33 - Technological Change: Choices and Consequences • Diffusion Processes

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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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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10831 (Browse shelf(Opens below))	Not For Loan

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October 2004.

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.