Trade in Used Equipment with Heterogeneous Firms

This paper examines the pattern of trade in used asset markets where firms have differing factor prices and utilization rates of capital goods. Depreciation is modeled as an increase in down time as machines age, and a measure of comparative advantage is derived that will explain the pattern of trade when there are two types of firms. It is shown that with heterogeneous firms, the price of used machines will reflect the characteristics of firms as well as the productivity of used machines, and the implications of this result for the study of depreciation are discussed. Finally, the relationship between firm characteristics and choice between purchasing new and used truck tractors is presented as an illustration of the predictions of the model.