Why Do Computers Depreciate?

Michael J. Geske, Valerie Ramey and Matthew Shapiro

No 10831, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C81 O33 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-acc
Note: EFG PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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.
Published as Why Do Computers Depreciate? , Michael J. Geske, Valerie A. Ramey, Matthew D. Shapiro. in Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches , Berndt and Hulten. 2007

Downloads: (external link)
http://www.nber.org/papers/w10831.pdf (application/pdf)

Related works:
Chapter: Why Do Computers Depreciate? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10831

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10831

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).