Secondhand market and the lifetime of durable goods

Antonio Sampayo, Luis Puch and Omar Licandro ()

No 2006-10, Working Papers from FEDEA

Abstract: This paper examines how a scrappage subsidy affects the lifetime of durable goods when secondhand markets are present. To this end, we propose a vintage model to analyze the replacement decision in an economy in which high and low income agents trade on a durable good. Thus, the existence of a secondhand market for this durable good has influence both on the price of used durables as well as on durables replacement. The value of the durable is decreasing with age so it is the price in the secondary market. We also discuss the implications of this model specification for the effects of second hand markets on the average age of the stock of durable goods.

Date: 2006-06
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