It has been suggested that a used car is scrapped when its price net to repair costs falls below its scrap value. This simple hypothesis captures the essence of the important idea that the life spans of durable goods are determined by both economic and technical considerations. The authors present empirical evidence based on an explicit econometric model of the scrappage decision. Analyzing make-model-vintage specific scrappage rates in Israel for 1979, the authors find that the hypothesized inverse relationship between price and scrappage probability exists and is of striking magnitude. This finding, when combined with the fact that new car prices in Israel are almost triple CIF prices, may expain why the median life expectancy of a vehicle in Israel is so much longer than that of a samilar vehicle in Western Europe or the United States.
ASJC Scopus subject areas
- Civil and Structural Engineering