Consumer Durables: Evidence on the Optimality of Usually Doing Nothing

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The authors argue that lumpy, nonconvex transaction costs are the norm for a wide range of economic decisions, which are thus characterized by inertial behavior. Application of this idea to the consumption of durable goods yields an (S,s) decision rule, which, when aggregated, highlights the different expected behavior of average expenditure per purchase versus the number of purchases. The empirical implications of this rule are presented and compared to other theories. A battery of empirical tests generally supports the predictions of the model; in particular, it does a good job of explaining the time pattern of response of spending on durables to a change in income. Copyright 1992 by Ohio State University Press.