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How old is too old? An economic approach to replacing military aircraft

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  • Victoria Greenfield
  • David Persselin

Abstract

The US Air Force is asking when to replace its aging aircraft. We develop a framework to identify economically optimal replacement strategies that recognizes cost trade-offs and incorporates age effects. We also preview a stochastic methodology. We use the framework to identify an optimal strategy, defined by the replacement age, for a generic fleet and conduct a sensitivity analysis. Quantitative illustrations show that the range of strategies that provides close-to-optimal outcomes widens as the operating and support (O&S) cost growth rate decreases and the ratio of the acquisition price to the initial O&S cost increases. A wider range implies more decision-making leeway.

Suggested Citation

  • Victoria Greenfield & David Persselin, 2003. "How old is too old? An economic approach to replacing military aircraft," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(5), pages 357-368.
    • Handle: RePEc:taf:defpea:v:14:y:2003:i:5:p:357-368
    DOI: 10.1080/10242690302926
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    References listed on IDEAS

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    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Vernon L. Smith, 1957. "Economic Equipment Policies: An Evaluation," Management Science, INFORMS, vol. 4(1), pages 20-37, October.
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    Cited by:

    1. Edward G. Keating & Irv Blickstein & Michael Boito & Jess Chandler & Deborah Peetz, 2014. "Investigating the Desirability of Navy Aircraft Service Life Extension Programs," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 271-280, June.
    2. Edward Keating & Matthew Dixon, 2004. "Investigating optimal replacement of aging air force systems," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(5), pages 421-431.

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