Identifying the Discount Factor of Forward Looking Consumers Based on Consumption from Inventory

49 Pages Posted: 24 May 2014 Last revised: 9 Apr 2015

See all articles by Selin Akca

Selin Akca

University of Zurich - Department of Business Administration

Thomas Otter

Goethe University Frankfurt - Department of Marketing

Date Written: April 2015

Abstract

In this paper we study the identification of discrete choice models of dynamically optimizing consumers. We first provide additional formal results for existing identification solutions. We then investigate the ‘last in, last out’ (LILO) constraint on consuming from the inventory as a means to identifying the discount factor in these models. We find that the LILO constraint (over-)identifies the discount parameter in the absence of assumptions about consumers’ expectations and show how LILO results in efficient estimates in a parametric, maximum likelihood framework using simulated data. Finally, we report survey based empirical evidence for the relevance of LILO strategies in four different categories.

Keywords: dynamic models, discount factor, identification, inventory

JEL Classification: C25, C51, D12

Suggested Citation

Akca, Selin and Otter, Thomas, Identifying the Discount Factor of Forward Looking Consumers Based on Consumption from Inventory (April 2015). Available at SSRN: https://ssrn.com/abstract=2440681 or http://dx.doi.org/10.2139/ssrn.2440681

Selin Akca (Contact Author)

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland
+41 44 634 9620 (Phone)

Thomas Otter

Goethe University Frankfurt - Department of Marketing ( email )

Frankfurt
Germany
++49.69.798.34646 (Phone)

HOME PAGE: http://www.marketing.uni-frankfurt.de/index.php?id=97?&L=1

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