Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher

Abstract

This paper formulates a simple, regenerative, optimal-stopping model of bus-engine replacement to describe the behavior of Harold Zurcher, superintendent of maintenance at the Madison (Wisconsin) Metropolitan Bus Company. Admittedly, few people are likely to take particular interest in Harold Zurcher and bus engine replacement per se. The author focuses on a specific individual and capital good because it provides a simple, concrete framework to illustrate two ideas: (1) a bottom-up approach for modeling replacement investment and (2) a nested fixed point algorithm for estimating dynamic programming models of discrete choice.