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Depreciation Rates for Australian Tractors and Headers - Is Machinery Depreciation a Fixed or Variable Cost?

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  • Tozer, Peter R.

Abstract

Seven different remaining value functions for tractors and harvesters were estimated using data from advertised prices for used farm equipment. The generalised Box-Cox model was used to nest six of the seven functions. The more complex Box- Cox function explained the data better, but simpler models such as the sum-of-theyears- digits, or double-square root models were no different and were easier to manipulate to estimate depreciation rates and costs. There were up to three components of depreciation, drive-away, age and use related, depending on functional form. Drive-away depreciation is the immediate loss in value of a machine due to purchase, in some models this depreciation was higher than either age or use related depreciation. When drive-away depreciation was treated as a separate cost or when there was no drive-away depreciation, due to functional form, age and use depreciation costs were approximately equal.

Suggested Citation

  • Tozer, Peter R., 2005. "Depreciation Rates for Australian Tractors and Headers - Is Machinery Depreciation a Fixed or Variable Cost?," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137951, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare05:137951
    DOI: 10.22004/ag.econ.137951
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    References listed on IDEAS

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    1. James Unterschultz & Glen Mumey, 1996. "Reducing Investment Risk in Tractors and Combines with Improved Terminal Asset Value Forecasts," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 44(3), pages 295-309, November.
    2. Weersink, Alfons & Stauber, Steve, 1988. "Optimal Replacement Interval And Depreciation Method For A Grain Combine," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 13(1), pages 1-11, July.
    3. Dumler, Troy J. & Burton, Robert O., Jr. & Kastens, Terry L., 2000. "Use Of Alternative Depreciation Methods To Estimate Farm Tractor Values," 2000 Annual meeting, July 30-August 2, Tampa, FL 21800, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Jing Wu & Gregory M. Perry, 2004. "Estimating Farm Equipment Depreciation: Which Functional Form Is Best?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 483-491.
    5. Timothy L. Cross & Gregory M. Perry, 1995. "Depreciation Patterns for Agricultural Machinery," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 194-204.
    6. Donald W. Reid & Garnett L. Bradford, 1987. "A Farm Firm Model of Machinery Investment Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(1), pages 64-77.
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    Cited by:

    1. Farrell, Terence C., 2008. "An Economic Evaluation of Conservation Farming Practices for the Central West of NSW," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6177, Australian Agricultural and Resource Economics Society.
    2. Tozer, Peter R., 2009. "Uncertainty and investment in precision agriculture - Is it worth the money?," Agricultural Systems, Elsevier, vol. 100(1-3), pages 80-87, April.
    3. Farrell, Terence C., 2008. "An economic evaluation of conservation farming practices for the central west of NSW," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 16.

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    Keywords

    Demand and Price Analysis; Farm Management;

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