PRICE CHANGES, MAINTENANCE, AND THE RATE OF DEPRECIATION

This study estimates rates of deterioration and depreciation for a sam ple of used privately owned single- and twin-engine aircraft over the period 1971-1991. The adoption of a strict liability standard in the 1 970s lead to a 775% increase in liability expenses for the manufacture rs of private planes between 1977 and 1985, resulting in sharp increas es in the prices of new and used planes throughout the late 1970s and 1980s. This period of rapid price inflation coincides with a decrease in the depreciation rates for used single- and twin-engine aircraft af ter 1975. In addition, our results indicate that the rate of deteriora tion is positively related to the required cost of engine maintenance, These findings call into question the commonly invoked assumption tha t depreciation rates may be treated as exogenously determined constant s, and lend support to the hypothesis that deterioration and depreciat ion rates respond systematically to key economic variables.