Obsolescence of Durable Goods and Optimal Consumption

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Obsolescence of Durable Goods and Optimal Consumption

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Dmitriy Stolyarov
Ennio Stacchetti

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Dmitriy L. Stolyarov

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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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 312.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:312

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Paper
- Ennio Stacchetti & Dmitriy Stolyarov, 2004. "Obsolescence of Durable Goods and Optimal Consumption," Econometric Society 2004 North American Summer Meetings 120, Econometric Society. [Downloadable!]

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-10-30 (All new papers)

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.:

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(explanations, 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.)

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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