Automobile replacement: a dynamic structural approach
AbstractThis paper specifies and estimates a structural dynamic model of consumer demand for new and used durable goods. Its primary contribution is to provide an explicit estimation procedure for transaction costs, which are crucial to capturing the dynamic nature of consumer decisions. In particular, transaction costs play a key role in determining consumer replacement behavior in both primary and secondary markets for durable goods. The unique data set used in this paper has been collected by the Italian Motor Registry and covers the period from 1994 to 2004. It includes information about sales dates for individual cars over time as well as the initial stock of cars in the sample period. Identification of transaction costs is achieved from the variation in the share of consumers choosing to hold a given car type each period, and from the share of consumers choosing to purchase the same car type that period. Specifically, I estimate a random coefficients discrete choice model that incorporates a dynamic optimal stopping problem in the spirit of Rust (1987). I apply this model to evaluate the impact of scrappage subsidies on the Italian automobile market in 1997 and 1998.
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Bibliographic InfoArticle provided by RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 42 (2011)
Issue (Month): 2 (06)
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Other versions of this item:
- Pasquale Schiraldi, 2010. "Automobile Replacement: A DynamicStructural Approach," STICERD - Economics of Industry Papers 49, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Pasquale Schiraldi, 2008. "Automobile replacement: a dynamic structural approach," LSE Research Online Documents on Economics 21780, London School of Economics and Political Science, LSE Library.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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