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VALUING THE SERVICES OF CONSUMER DURABLES
Author(s) -
Karz Arnold J.
Publication year - 1983
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.1475-4991.1983.tb00657.x
Subject(s) - economics , consumption (sociology) , personal consumption expenditures price index , value (mathematics) , depreciation (economics) , microeconomics , capital expenditure , capital (architecture) , renting , investment (military) , economic surplus , consumer welfare , welfare , personal income , macroeconomics , capital formation , finance , financial capital , social science , law , history , archaeology , sociology , computer science , profit (economics) , machine learning , political science , market economy , politics
Although consumer durables are treated as nondurables in most economic accounts, economists have long recognized that they could be treated as capital. If an estimate of the value of the services of consumer durables was available, it could be included in personal consumption expenditures and purchases of the durables treated as a form of investment. Such treatment would give a better picture of changes in a nation's economic welfare over time and make international comparisons more meaningful. This article reviews the economic literature on how the services of consumer durables can be valued. It examines six alternative measures: the (1) user cost; (2) capital recovery; (3) opportunity cost; (4) market rental value; (5) cost of a substitute; and (6) cash‐equivalent value measures. The first three are based on the summation of the costs of the inputs used to produce the services, although only the first two are consistent with the principle that the purchase price of a durable equals the discounted present value of its expected future benefits. The fourth and fifth measures are based on the prices of marketed services while the sixth is derived from the consumer's demand function for the good's services. The article also discusses six major issues in implementing these measures: (1) imputing a rate of return to capital; (2) measuring declines in market value (depreciation and capital gains); (3) accounting for operating expenditures; (4) adjusting for capacity utilization; (5) deflating service values; and (6) defining consumer durables.