Automobile Replacement: A Dynamic Structural Approach

31 Pages Posted: 27 Feb 2009 Last revised: 19 Jan 2012

See all articles by Pasquale Schiraldi

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics

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Date Written: January 28, 2011

Abstract

This 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.

Keywords: dynamic demand, discete choice, automobile, transaction costs

JEL Classification: L62, C13, C51, D12, D90, L15

Suggested Citation

Schiraldi, Pasquale, Automobile Replacement: A Dynamic Structural Approach (January 28, 2011). RAND Journal of Economics, Vol. 42, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=1350034 or http://dx.doi.org/10.2139/ssrn.1350034

Pasquale Schiraldi (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://sites.google.com/view/schiraldi-pasquale/home

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