Tuesday, December 04, 2007

One-hoss microwave 

I first bought a microwave when Mrs. and I were married. I remember driving to several stores, speaking to salespeople, weighing characteristics carefully, then buying it. It was a substantial purchase for us (I'm quite sure it cost more than $200, and this was around 1988.) It traveled with us for about eight years.

About the time it failed, we bought our house. In the cabinetry of the kitchen is a space for a microwave, and one was there similar to ours. We wanted that one because it fit the space. The house was about ten years old, and it turns out so was the microwave. The seller was incredulous that we wanted the microwave but relented.

A year later, the microwave stopped working. We went to one store (the one with two words beginning with 'B') and talked with two salespeople. Fretted over it for about an hour, paid about $150 for a decent model, and took it home.

I then never thought about it again.

Last night I came home and both Mrs. and Littlest had sad looks on their face. The microwave did not work. I examined it and sure enough it did not work. "Do we get it fixed?" Simple cost-benefit analysis question, I replied. Ate a relatively cold late dinner and then went to the store and bought same. Opened laptop, looked at the same store's website. Saw nice one for $100. Took Littlest, bought same, came home and plugged it in.

Conclusions: Microwaves are an example of one-hoss shay depreciation. When my long-life lightbulb croaks, I am out some money, and then I have light. I get the same service from the microwave each time until it stops working, then I have zero service. On a rather difficult day, the $100 is a loss, but the decision is pretty simple: You no longer own a microwave; they cost $100; want one?

Amazing what a bag of microwave popcorn will get you thinking about. I had the same popcorn Sunday and Monday night. Was the cost of Monday's popcorn $101 ($1 bag + $100 oven)?

Question: Is a bridge a one-hoss shay? We don't create sinking funds for replacements of lightbulbs or microwaves because you typically have enough money to replace them in a ready reserve. Poop happens. But we do for larger expenses like bridges. It has to be tempting to raid that fund. But when a bridge falls it's the same choice. You don't own a bridge; they cost $250 million; want one?

I think about this in terms of considering what the value of public capital is. What does it mean to depreciate a bridge or a public building? Do they generate less value as inputs to production as they age?

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