Observable and unobservable determinants of replacement of home appliances

Abstract

Despite the dominant role of replacement purchases in many consumer durable categories, the research in this area has not been extensive. Only in the last few years has the economic theory made progress towards a more rigorous analysis of the dynamic nature involved in replacement decisions. As a consequence of this, applied researchers have switched from conventional discrete choice models to new econometric techniques (e.g. duration analysis) that allow for richer relationships between socioeconomic variables, characteristics of the durable good, and the likelihood of its replacement over time. Our study focuses on two home appliances taken from the ‘Residential Energy Consumption Survey’ (RECS). Based on a duration model that allows for unobserved heterogeneity across households, we conclude that household demographics and product features (both observable and unobservable) in general have statistical power to explain replacement decisions over time.