A Theory of Maintenance Expenditures Tested on Automobile Data from Greece

Abstract

This paper derives a model of irregular or unplanned maintenance and repair outlays from an analytical framework based on rational economic behavior in which maintenance, utilization and service life decisions are appropriately integrated and estimates it with the help of data from 433 automobiles imported into Greece from various countries. On the theoretical plain it is shown that the model allows endogenously for most of the variables that have been identified in the relevant literature as important determinants of such expenditures. Also the model yields sharp sign predictions for the included variables and by doing so it sheds considerable light on several issues of theory and applied research in this area. On the empirical plain it is found that: a) there are two behavioral clusters of automobile owners, i.e. one that recommends pooling of the corresponding country data and another that suggests separate estimation of the model at the country level; b) as expected, the reported amounts of these outlays are related positively to the automobile’s age, intensity of utilization, and road accidents, and c) even though the expenditures under consideration for Japanese made cars appear to be relatively more sensitive to road accidents than those of automobiles from all other countries, at least in the years of the sample and on this basis, they offered the best value for the money.