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Why Do Computers Depreciate?

Why Do Computers Depreciate?

Chapter:
(p.121) 5 Why Do Computers Depreciate?
Source:
Hard-to-Measure Goods and Services
Author(s):
Michael J. GeskeValerie A. RameyMatthew D. Shapiro
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226044507.003.0006

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

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