ECONOMIC ANALYSIS OF THE JUNK AUTOMOBILE PROBLEM.

A general discussion of the structure of the junk automobile recycling system shows that the generation of stripped automobile hulks and scrapped automobiles is price inelastic. As a result, it is extremely difficult for the price mechanism to automatically achieve an equilibrium that will prevent the accumulation of excessive automobile wrecker inventories and vehicle abandonment by the last owners of scrapped cars. The new shredder processing technology and the new portable flattener technology have altered the structure of the junk automobile recycling system. The shredder technology has increased the demand for processed automobile scrap. This increased demand is reflected in higher prices paid for hulks by scrap processors. The two new technologies have eliminated, at least potentially, the net cost of shipping stripped hulks so frequently incurred by wreckers in the past. The elimination of this cost eliminates the economic incentive for excessive wrecker inventories.