A theory of maintenance and an application

This paper derives a model of maintenance and repair expenses from an analytical framework based on rational economic behavior in which maintenance, utilization and service life 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 maintenance expenditures. Also the model yields sharp sign predictions for the included variables and by doing so it sheds considerable light on several outstanding issues in this area. On the empirical plain it is found that: a) the best functional form is obtained when the model is estimated using the GMM estimator in conjunction with country specific dummy variables to allow for shifts in the intercepts; b) as expected, the reported amounts of outlays for maintenance and repair are related positively to the automobile’s age, intensity of utilization, and road accidents, and negatively to quality, and c) Japanese made cars may be least demanding in maintenance outlays, followed by cars from Germany, and, lastly, by cars made in all other countries. JEL classification: D12, E2