- Publication Date :
- 01 Sep 2009
- DOI :
Age-price and Depreciation Profiles
- Pages :
- DOI :
Show Abstract /
In this document, consumption of fixed capital or depreciation has been defined as the loss in value of an asset due to physical deterioration (wear and tear), and due to normal obsolescence. Depreciation is a value concept, to be distinguished from quantity concepts such as the age-efficiency function that capture losses in an assetfs productive efficiency. There are several ways of determining depreciation parameters. They include:
Start from empirical information about assets' service lives, and make an additional assumption about the functional form of the depreciation pattern. The various approaches towards assessing service lives empirically are described in Section 13.1;
Use information on depreciation implicit in used asset prices and exploit it econometrically;
Derive age-price and depreciation patterns from age-efficiency profiles;
Use a production function approach and estimate depreciation rates econometrically.
4. The first two methods are by far the most common ones and will be described in some detail below. The production function approach will be described very succinctly.