2025/05/23 by H. Youn Kim, K. K. Gary Wong · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · #Business #Durable good #Economic theories and models #Economics #Financial Literacy, Pension, Retirement Analysis #Housing Market and Economics #Industrial organization #Microeconomics
paper · doi:10.1002/soej.12778
published in Southern Economic Journal 93(1), 85-127 (Wiley)
openalex publication_date 2025/05/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/03
Abstract Durable goods are typically treated as irreversible or costlessly reversible with no allowance for adjustment costs. We formulate and estimate a dynamic structural model of durable goods with the user cost that features costly reversibility and adjustment costs with nondurable goods, and analyze the demands for durable and nondurable goods using U.S. data. We find an important role of secondhand markets in mitigating the irreversibility of durable goods and smoothing consumption against income shocks, with costly reversibility. We show that the consumer's observed behavior of durable goods, though not optimal, does not depart substantially from the time path of durables stock estimated with adjustment costs. There is a material difference in demand elasticities for nondurable and durable goods estimated with the user cost, with and without adjustment costs. While these findings are illuminating, durable goods are heterogeneous, and we find significant quantitative differences in adjustment costs among them.