Estimating Farm Equipment Depreciation: Which Functional Form Is Best?

Abstract

Farm equipment depreciation has been the focus of research in economics and engineering for more than 60 years. Using data from 16 years of auction sales, depreciation functions were estimated for 17 types of equipment, including tractors, combines, swathers, planters, discs, and trucks. The Box—Cox function did the best job of explaining variability in these various sales data bases and in forecasting prices in an out‐of‐sample data set. Nevertheless, the much less complicated double square root and sum‐of‐year's digits functions performed nearly as well. Simplified double square root estimates are provided for practitioners interested in forecasting equipment depreciation.