Durable purchases over the life cycle

Publication type

Conference Paper

Series

BHPS-2009 Conference: the 2009 British Household Panel Survey Research Conference, 9-11 July 2009, Colchester, UK

Authors

Publication date

June 1, 2009

Abstract:

In this paper, we investigate the life cycle patterns of households’ spending on durable goods using expenditure panel data on appliances and consumer durables in the British Household Panel Study (BHPS) between 1997 and 2006. Our paper uses a narrow definition of durables to shift the focus from the influence of capital market conditions on the demand for durables, analysed in Kr├╝ger and Fernandez-Villaverde (2005) and (2007), to the role of durability in shaping demand patterns which has received little attention so far. A descriptive look at the data reveals three novel stylised facts about expenditures on our set of durables: (i) expenditures for appliances as well as consumer electronics decrease strongly as household (heads) age; (ii) the decline is mainly due to decreases in purchase frequency rather than the amount paid in the case of a purchase; (iii) these declines in overall spending and in purchase frequency are larger for electronics, for which we observe more than a 50% decline in the probability of purchasing between age groups 40 and 85. Finally, a comparison with the nondurable commodity food reveals a much larger decrease in durable spending than in expenditures on food over the life cycle. We analyse these stylised facts in a panel context, advancing an innovative identification strategy to disentangle age, cohort and time effects. Furthermore, we carefully model the impact of prices by modeling the user cost of durables in the light of substantial price changes for the durable commodities. Given the potential link between the half life of a durable and the life expectancy of the durable-consuming household members and its purchase and replacement decision, our analysis is particularly geared at understanding the demand patterns within older households compared to other approaches in the literature to date. While Kruger and Fernandez-Villaverde (2005) find that changes in household composition explain roughly half of the hump-shaped pattern in overall life cycle expenditures on durables, our analysis points to significant age-specific preferences even when controlling for household composition.

Subject

Link

- http://www.iser.essex.ac.uk/events/conferences/bhps-2009-conference/programme

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