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A Dynamic Structural Analysis of Consumer Demand for Automobiles in Sydney, Australia, 1981-1985

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  • Michael Sandfort

    (Southern Methodist University)

Abstract

This paper develops a dynamic stochastic model of consumer demand for automobiles in a discrete choice context, where automobile transactions are costly and automobile scrappage is endogenously determined. Automobile quality is modeled as having both a non-depreciable component (e.g., wheelbase or number of cylinders) and a depreciable component (e.g., aggregate odometer reading). Discretization of the continuous component of the automobile replacement decision (i.e. the quality of the replacement automobile) allows this mixed-control process to be approximated as a high-dimensional discrete-control process. Choice probabilities, conditional on consumer demographics and the individual components of automobile quality, can then be estimated using Rust's nested fixed-point algorithm. This estimation technique is applied to panel data on household automobile transactions in Sydney, Australia during the years 1981-85.

Suggested Citation

  • Michael Sandfort, 1999. "A Dynamic Structural Analysis of Consumer Demand for Automobiles in Sydney, Australia, 1981-1985," Computing in Economics and Finance 1999 731, Society for Computational Economics.
    • Handle: RePEc:sce:scecf9:731
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