Obsolescence of Durable Goods and Optimal Consumption

Ennio Stacchetti and Dmitriy Stolyarov

No 120, Econometric Society 2004 North American Summer Meetings from Econometric Society

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

Keywords: durable goods; obsolescence; aggregate consumption fluctuations (search for similar items in EconPapers)
JEL-codes: E21 E32 O33 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (1)

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Working Paper: Obsolescence of Durable Goods and Optimal Consumption (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nasm04:120

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