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

Michael Sandfort ()
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Michael Sandfort: Southern Methodist University

No 731, Computing in Economics and Finance 1999 from Society for Computational Economics

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.

Date: 1999-03-01
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