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Obsolescence of Durable Goods and Optimal Consumption

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Author Info
Ennio Stacchetti
Dmitriy Stolyarov

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Abstract

We study a model with a durable good subject to abrupt, periodic obsolescence, and characterize the optimal purchasing policy. Consumers optimally synchronize new purchases with the arrival of new durable models. Hence, some agents use a "flexible" optimal replacement rule that switches between two adjacent replacement frequencies at irregular intervals. These agents react to wealth shocks by changing the timing of future purchases. The model has distinct comparative statics on obsolescence and durability and can explain how durables with high depreciation rates may have more volatile expenditure. The model also predicts how demand fluctuations respond to a change in product variety. These predictions match the observed changes in volatility of the US auto sales after the introduction of smaller foreign cars in the 1970s

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Publisher Info
Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 120.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:120

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Related research
Keywords: durable goods; obsolescence; aggregate consumption fluctuations;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May. [Downloadable!] (restricted)
  3. Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
  4. Caballero, Ricardo J, 1993. "Durable Goods: An Explanation for Their Slow Adjustment," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 351-84, April. [Downloadable!] (restricted)
    Other versions:
  5. Andrew Caplin & John Leahy, 1999. "Durable Goods Cycles," NBER Working Papers 6987, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
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  7. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425. [Downloadable!] (restricted)
  8. Attanasio, Orazio P, 2000. "Consumer Durables and Inertial Behaviour: Estimation and Aggregation of (S, s) Rules for Automobile Purchases," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 667-96, October.
  9. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-36, June. [Downloadable!] (restricted)
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  10. Christopher D. Carroll & Wendy E. Dunn, 1997. "Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets," NBER Working Papers 6081, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Caballero, Ricardo J, 1990. "Expenditure on Durable Goods: A Case for Slow Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 727-43, August. [Downloadable!] (restricted)
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  12. Jerome Adda & Russell Cooper, 2000. "The Dynamics of Car Sales: A Discrete Choice Approach," NBER Working Papers 7785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. John V. Leahy & Joseph Zeira, 2000. "The Timing of Purchases and Aggregate Fluctuations," NBER Working Papers 7672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January. [Downloadable!] (restricted)
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  1. Jerome Adda & Russell Cooper, 2000. "The Dynamics of Car Sales: A Discrete Choice Approach," NBER Working Papers 7785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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