Durable Purchases Research Articles

Strategies Used by Working and Nonworking Wives to Reduce Time Pressures

There appear to be limited differences between employed and nonemployed wives in their use of strategies to relieve time pressures. Holding income and life-cycle stage constant, neither wives' employment nor recent entry into the labor force are significant determinants of the purchase or ownership of labor-saving durables, such as microwave ovens and dishwashers. Although working wives prepare fewer meals, if income or life cycle is held constant, working wives and nonworking wives are generally similar with respect to method of meal preparation and shopping behavior.

Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables: Comment

In an earlier article in this Journal, Hausman estimated the implicit discount rate used by air conditioner buyers in the tradeoff between initial cost and energy usage. Similar estimates for refrigerators yield discount rates from 45 percent to 300 percent. This raises questions about consumer and producer behavior and weakens certain criticisms of efficiency standards.

Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables

This article presents a model of individual behavior in the purchase and utilization of energy-using durables. The tradeoff between capital costs for more energy efficient appliances and operating costs for the appliances is emphasized. Using data on both the purchase and utilization of room air conditioners, the model is applied to a sample of households. The utilization equation indicates a relatively low price elasticity. The purchase equation, based on a discrete choice model, demonstrates that individuals do trade off capital costs and expected operating costs. The results also show that individuals use a discount rate of about 20 percent in making the tradeoff decision and that the discount rate varies inversely with income.

Use of time as a determinant of family market behavior

An attempt is made to represent the concept of life style in terms of the use of time. The variables obtained are used to test their effectiveness, in conjunction with socioeconomic and attitudinal variables, for explaining certain types of consumer financial behavior, using data from two panels of young married couples, one of 130 couples in Decatur-Peoria, Illinois, and the other of 185 couples in Chicago. The results indicate that use-of-time variables are significant in helping to explain purchase of durables, ownership of credit cards, and amount of insurance.

A User Cost Approach to New Automobile Purchases

Recent econometric investigation into corporate investment behaviour in the US has re-emphasized the importance of the user-cost element in investment decisions.3 But despite the obvious parallels between investment decisions by firms and durable purchase decisions by consumers, the user-cost theory has not been applied to consumer durable goods demand. This paper attempts to fill this hiatus. Both investment and durable goods studies usually start by assuming a very general stock or generalized accelerator framework.4 In the case of automobiles, new car purchases are acquisitions to the existing stock. The rate of acquisition depends upon the difference between the existing stock and some desired level. Most efforts in automobile demand studies have been to refine this stock adjustment model and to explain changes in the desired stock. This paper, however, does not start with the stock adjustment model as its premise, but presents an alternative structure. The assumption of the stock adjustment model that may be inappropriate when applied to automobiles is that all cars are weighted perfect substitutes,5 i.e. that all cars provide essentially the same service, private transportation. An alternative view is that the services of new cars are considered by consumers to be qualitatively superior to those of used cars, thus new car purchases are not merely additions to the existing stock. Rather, they reflect the demand for a unique commodity, new car services, measured independently of the existing stock of used cars. This model will be called the superior goods model and will be compared to the stock adjustment model. In Section 2 the models are presented. First, the user-cost theory, to be studied in the context of both the superior goods and the stock adjustment forms, is seen to provide the price variables, rental prices, and to provide weights for homogenizing new

Household Demand for Durable Goods: The Influences of Rates of Return and Wealth

They indicate that purchases of durable goods (DUR) are the third most volatile component behind inventory investment (INV I) and federal government expenditures (F GOV). The correlation coefficients between GNP and its components listed in the second row of table 1 show that durable goods purchases have the third hiighest covariance with GNP after inventory investment and nonresidential investment (NRI). Theoretically, these purchases represent either changes in the size of the household portfolio through changes in the flow of savings, or a reallocation of accumulated wealth among assets in response to changes in rates of return. Empirically, some effort has been given to examining the separate influences of rates of return and income. Hamburger (1967) found that interest rates, the price of durable goods relative to other prices faced by the consumer, and disposable personal income all have a significant impact on purchases of durable goods. portance of these variables as sources of fluctuation in purchases. Motley (1970) included a user cost of real assets variable in addition to the rate on savings deposits and expected income, and found in sharp contrast to Hamburger that none of them had a significant influence on the demand for the sum of durables and housing. The analysis of fluctuations in durable good purchases presented here differs from its prede-

The Role of Interest Rates and Inflation in the Consumption Function

MOST OF THE ANALYSIS of the effects of interest rate changes on consumption has been concerned with (1) the relative importance of income and substitution effects in determining how households will allocate their resources over time, and (2) the substitution effect at a moment of time determining the demands for durable versus nondurable consumption goods. But two other types of interest rate effects on consumption-effects that have received little attention in the literature-may be of some importance and are the subject of this report. The rate of inflation enters the analysis because of the wedge it drives between the nominal and real rates of interest. One of the effects to be considered is a consequence of the fact that the real rate of interest helps determine the services yielded by the stock of consumer durables. Following a common practice in econometric work on consumption, the services of durables are included in consumption and purchases of consumer durables are excluded. Services of durables must also be added to disposable income. Since the value of such services cannot be ascertained from market transactions, it must be imputed. The stock of consumer durables is first estimated, and then multiplied by a depreciation rate and a net rate of return to obtain the gross yield on the stock. Since

Joint Estimation of Relationships Involving Discrete Random Variables

single equation techniques which take account only of heteroscedasticity. Data on consumer decisions with respect to durable purchases and use of instalment credit are analyzed to illustrate one use of these techniques in economics.

The Pricing of Consumers' Durables

The tutility of consumers' durables to the buyer stems primarily from the services which he expects to enjoy over a number of successive budget periods. Althouigh the services are a time flow, the for the durable itself cannot be represented by the usual Marshallian flow functions of static character. The models which take the place of the traditional demandsupply scheme are of dynamic character even if the function of price as clearing the market is preserved. The notion of excess demand governing price changes adds a further dynamical element. SINCE THE publication of The General Theory, attacks on the Marshallian scheme of price determination by supply and have gradually increased in intensity, although the scheme still dominates the textbooks. From stress on liquidity preference, the accent has shifted to substituting for Marshall's idea of current purchases as a function of price (flow demand) the notion that there is a stock of assets desired by income receivers which is a function of price. For the theory of interest this point was made in the pioneering article by Scitovsky [15]; later has applied this idea to the pricing of durable goods, i.e., goods which render their services in consecutive periods of time' and are not consumed uno actu: it is not the current purchases of durables, but the stock of durables desired by consumers for use which is a function of price. The stock-demand approach was originally not based upon econometric analysis of whether the new stock-demand model would work better than the flow model in explaining price observations. Like the traditional theory, the new approach was based on common experience interpreted by introspection. In this paper, which undertakes to revise and develop the earlier approaches, we shall adopt this method of armchair theorizing, although we are fortunately able to refer also to recent econometric investigations supporting our particular approach. Of course, no complete survey and examination of all pertinent econometric models is possible here. We start by sketching briefly the basic difficulties of the stock-demand approach as it was originally formulated. To the stock-demand approach