characteristics of the equipment.

In addition, the airlines have developed a sophisticated actuarial method for analyzing aircraft equipment repair data. This technique applied to consumer equipment repair data would provide the necessary mathematical models for determining whether in fact rising repair costs are

causing products to be discarded before termination of useful life.

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3.0 SALVAGE VALUE ENHANCEMENT ALTERNATIVES

This Section presents the policy considerations inherent in attempting to increase the salvage value of various consumer products through legislative and administrative means.

3.1 Definition

Salvage value is not used in this report in the same sense as it appears in traditional accounting concepts or in regulations of the Internal Revenue Service regarding permissible rates of capital depreciation. In that context, salvage value is an arithmetic residual figure, and represents an arbitrary value assigned to an item after it has been fully depreciated. It is intended to reflect the economic value of the depreciated item, but in fact may be a figure nowhere approximating an item's true economic value.

Salvage value as used in this report means the value assigned by the marketplace to an item at the end of its useful primary life at the end of its physical ability to fulfill the purposes for which it was originally purchased. Salvage value is thus a concept which occurs once an item is beyond rehabilitation for use by either normal maintenance methods, or by ordinary repairs. It is the economic value

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of the item at that precise point in time. Salvage value will thus be a reflection of the following potential uses of the item:

a.

b.

c.

The potential for rehabilitating or re-
building the item to serve its original
function;

The potential for the use of the component
materials of the item as raw materials in
another industrial process;

The potential for the use of the component
parts of the item as component parts in an-
other item;

d. The potential for the use of the item as

disposal fill (a variation of b).

It may be that an item will have economic value resulting from more than one of the above uses; i.e., that it has value both as a potential raw material and as an item capable of being rebuilt. It is assumed for the purposes of this report that the salvage value is the highest value of the item resulting from its potential uses. Thus the price of a particular salvage-use of an item is assumed to be a true reflection of its present utility to the economy. Hence any attempt to increase the price or salvage value of an item is assumed to be an attempt to increase the utility of the item

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As discussed below, there are various alternative legislative and administrative approaches through which the over-all utility of a particular salvage-item can be increased, ranging from increasing the ease with which spent items can be transported throughout regions of the country to altering the physical composition of an item to insure its maximal use as a raw material in other industrial processes. Whether or not, and to what extent it is feasible to attempt to increase the salvage value of a class of items, however, is itself which must take into account a variety of other and per

haps competing factors such as:

judgment

the impact of disposal of the item on available

solid waste disposal facilities

the effect of product durability on turnover within

the economy, and on consequent uses of raw materials, energy and disposal facilities

the effect of product efficiency on the use of available energy supplies

the impact of the production-use-disposal cycle of

the item on the long-run availablity of virgin raw
materials and natural resources

the efficiency of diverting available capital and
labor resources to processes which attempt to increase

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salvage value; e.g., whether investing capital
and labor in creating a product deposit-return
system is an efficient use of these resources
the effect of the rate of product turnover on
the distribution of technological innovation
throughout the system. Constant rebuilding
and recirculation of items may have a damping
effect on the rate at which real technological
innovation occurs and is distributed throughout
the system

the effect on the quality of items produced by
using reclaimed materials in place of virgin
raw materials which have a lower incidence of
physical and chemical impurities

the opportunity cost of disposal of an item

with a high capital value, but little economic
or salvage value

It is not entirely clear that measures which would tend to maximize salvage value would automatically result in the highest overall utility to the economy and to society.