Car scrapping behaviour, post WW2: Econometrics

Aman Gopal (A005)

Determinants of Scrapping Rates for Post-War Vintage Automobiles

Part I: Introduction

The paper, published in 1977 examines the behavior of scrapping rates for domestically manufactured

postwar vintage automobiles in the United States.

Scrapping of an automobile is a part of the overall problem of capital management which involves a

purchase decision, maintenance and repair decisions and finally scrapping of the automobile which may

coincide with a replacement decision.

Though an automobile may pass through a sequence of owners in its life, the usage pattern of the

vehicle remains consistent regardless of the number of owners. So for the sake of simplicity, the author

assumes that the life cycle of the car can be determined as if a single decision maker is involved.

The factors affecting the economic decision to scrap an automobile involve stochastic elements so that

we observe some scrapping to occur at all ages following a pattern that is quite similar for all makes and

vintages.

The model of scrapping behavior that is constructed in the second section takes these features into

account and leads to an econometric framework that predicts the probability that a car of given make,

vintage, and age will be scrapped.

Part II: The Model

The decision to scrap an automobile may be captured by a model that allows repairing the vehicle to be

an alternative for scrapping the vehicle.

When the vehicle is designed, the manufacturer determines features that affect:

i) Pattern of breakdowns

ii) Nature of repairs

These features can be simplified into a single feature, the durability parameter (δ) In each time period, a car would suffer a breakdown which would require a repair to restore the service flow. The size of the repair required is a non-negative random variable whose distribution depends on:

i) a: The...