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

Format:

Book

Author/Creator:

Geske, Michael J.

Contributor:

National Bureau of Economic Research.

Ramey, Valerie A.

Shapiro, Matthew D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10831.

NBER working paper series no. w10831

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

October 2004.