Stock Of Durables Research Articles

Inequality of health stock and the relation to national wealth

BackgroundThe decline in global and between-country health inequality is a major challenge to overcome. However, few studies have systematically investigated the relationship between inequality of health stock and national wealth. From an economic perspective, health can be viewed as a durable capital stock that produces an output of healthy time. Therefore, in this paper, we focused on health capital to investigate the relationship between inequalities of national health and national wealth.MethodsBased on health stock data from 1990 to 2015 for 140 countries, we estimated Gini coefficients of health stock to investigate associations with a well-known economic flow indicator, Gross Domestic Product (GDP), stock-based national wealth indicator, Inclusive Wealth Index (IWI), and firm-level net income.ResultsThe estimated Gini coefficient of global health stock shows that health stock has experienced a global decline. The Gini coefficient for low-income countries (LICs) showed the fastest decline in health stock, dropping from 0.69 to 0.66 in 25 years. Next, rapid population growth and the rise in the youth share of the working-age population in LICs were most likely contributing factors to the decline in inequality. Most countries that experienced positive health stock growth also indicated a strong positive relationship with GDP and IWI. However, some countries showed a negative relationship with natural capital, which is a part of IWI. In addition, firm-level net income showed no obvious associations with health stock, GDP and IWI.ConclusionsWe argue that a negative relationship between health stock and natural capital is a sign of unstable development because sustainable development involves maintaining not only GDP but also IWI, as it is a collective set of assets or wealth comprising human, produced and natural capital. Moreover, in our analysis of firm-level income data, we also discuss that income will be influenced by other factors, such as innovations, human resources, organization culture and strategy. Therefore, the paper concludes that health stock is a vital component in measuring health inequality and health-related Sustainable Development Goals (SDGs). Thus, IWI is more comprehensive in measuring national wealth and can complement GDP in measuring progress toward sustainable development.

ON THE TAXATION OF DURABLE GOODS

AbstractThis article proposes a dynamic Mirrleesian theory of commodity taxation in the presence of durable goods. A uniform taxation across all goods is suboptimal even when the consumption preferences are separable from labor. If the consumption utility function is strictly concave and durable stocks are adjustable without friction, durable investment should be taxed at a higher rate than the purchase of nondurable goods. With adjustment frictions, the wedge on durable investment depends on substitution effects between durable and nondurable consumption and can be positive or negative. An application suggests that housing investment should face higher tax rates than regular consumption.

On the dynamics of a durable commodity market

Disequilibria phenomenon appears in the economic model of durable stocks proposed by A. Panchuck and T. Puu in [7]. In this paper, assuming that agents have the same utility functions, we give not only bounds of the disequilibrium but also prove the existence of a compact set of no-trade points such that it does not depend on the initial stock distribution. We also give a description of the nature of $ \omega $–limit sets in the general case proving that disequilibrium points can be attained as limit points of orbits.

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Gross Migration, Housing and Urban Population Dynamics

Cities experience significant, near random walk productivity shocks, yet population is slow to adjust. In practice, local population changes are dominated by variation in net migration, and we argue that understanding gross migration is essential to quantify how net migration may slow population adjustments. Housing is also a natural candidate for slowing population adjustments because it is difficult to move, costly to build quickly, and a large durable stock makes a city attractive to potential migrants. We quantify the influence of migration and housing on urban population dynamics using a dynamic general equilibrium model of cities which incorporates a new theory of gross migration motivated by patterns we uncover in a panel of US cities. After assigning values to the model's parameters with an exactly identified procedure, we demonstrate that its implied dynamic responses to productivity shocks of population, gross migration, employment, wages, home construction and house prices strongly resemble those we estimate with our panel data. The empirically validated model implies that costs of attracting workers to cities drive slow population adjustments. Housing plays a very limited role.

The anatomy of capital stock : input-output material flow analysis (MFA) of the material composition of physical stocks and its evolution over time

The operation of an economy is supported by the stock of materials in the form of durables and infrastructure such as machinery, equipment, buildings, and structures. The amount of durables and infrastructure or “capital stock” in the economy is of great interest in the literature of economics, and is usually measured in monetary terms based on the data on capital expenditure. In spite of its wide use by economists, this measure of “capital stock” is of very limited use for sustainable management of material stock because of its neglect of physical properties such as the mass and material composition. This paper proposes a new method of measuring the stock of long-lived durables and infrastructure in terms of the mass of its materials. This method is based on the WIO-MFA method [S. Nakamura et al. J. Ind. Ecol. 11 (2007) 50-63] and the capital formation matrix that is one of the supplementary tables of the input-output table. The method is applied to the Japanese input-output data with 400 sectors, with 9 types of metals (iron, ferroalloy, copper, zinc, lead, tin, aluminum, silver, and gold) and 8 types of plastics (thermo-setting resins, PE (low), PE (high), PS, PP, PVC, high-performance resins, and other resins) occurring as materials. It was found that substantial variations exist among sectors while fixed capital formation in the year 2000 weighs 518 kg per million Japanese yen on average in metals and plastics.

Changes in durable stocks, portfolio allocation, and consumption expenditure in the aftermath of the Kobe earthquake

To understand the household recovery process from unexpected serious damage caused by a natural disaster, we analyze household data from the Kobe earthquake in 1995. We address three questions—how damaged stocks of durable wealth are reinvested, how an ex post portfolio of borrowing or dissaving is reallocated to diversify the asset shocks caused by the disaster, and how formal and informal consumption insurance mechanisms are effective for amending home damage—all of which have been largely unanswered. We obtain three findings. First, people respond to negative income changes and housing damage by reinvesting damaged wealth. Second, households borrow extensively to amend the large housing damage caused by the earthquake. However, they dissave only for minor household asset damage. Third, consumption smoothing is not achieved for nondurable goods that are significantly affected by negative income changes and household asset damage. These findings suggest that asset shocks caused by a large natural disaster are not sufficiently diversified for households, indicating a large gap in designing effective insurance mechanisms.

On the employment, investment, and current account effects of trade liberalizations with durability in consumption

The effects of trade liberalizations are studied for a small open economy in a model with durable goods. A trade liberalization increases the permanent income of the representative agent, because it removes trade distortions. The increase in permanent income leads to a corresponding increase in the steady state stock of durable goods, and a fall in labor supply. The fall in labor input reduces investment, which tends to generate a current account surplus. To increase the stock of durables savings falls, which tend to generate a current account deficit. The adjustment of the current account will likely be non-monotonic.

Optimal Equipment Replacement and Scrapping Under Improving Technology

INTRODUCTION In order to secure the services of durables at minimum cost, producers and consumers confront invariably the question: How frequently should a stock of old durables be replaced by a stock of new ones? Clearly, the old durables should not be replaced too soon because the cost of acquiring them will occur too frequently and this will raise the unit cost of their services. However, the durables should not be replaced too late either, because their rising operating costs and the higher productivity of durables of newer vintages render them economically inferior. So, to tackle the issues involved in determining the optimal life of durables, researchers in the fields of management and economics have adopted over the years various approaches. The terms capital, equipment, and have been employed frequently in the relevant literature to indicate that the good under consideration has the properties of a producer's durable. In this paper, we use these terms interchangeably. The same comment holds also for service life, and lifetime. Preinreich (1940) was the first to show how the optimal life of durables can be determined. More specifically, according to his theorem, the optimal economic life of a single machine should be computed together with the economic life of each machine in the chain of future replacements extending as far into the future as the owner's profit horizon. However, the theorem was formulated under two crucial assumptions. The first of them abstracted from a technological progress and postulated that newer machines of identical type replaced older machines (like-forlike). This assumption contradicted casual observations and was ultimately relaxed by Smith (1961) who generalized the above result of Preinreich (1940) to the case where the older machines were replaced by more productive machines embodying the most recent advances in science and technology. The second assumption concerned the horizon of the reinvestment process and required the owner of the machine to choose its duration on the basis of their perception on how long the investment opportunity might remain profitable. Later, depending on the specification of the owner's profit horizon, different models emerged for the determination of the optimal lifetime of assets. In particular, by limiting the owner's profit horizon to a single investment cycle, researchers in the field of capital budgeting obtained the so-called class of models and used it to derive strict rules regarding the optimal asset life. Initially, Robichek and Van Horne (1967) suggested that an asset should be abandoned during any period, in which the present value of future cash flows did not exceed its abandonment value. Then, based on the possibility that the function of cash flows might not have a single peak, Dyl and Long (1969) argued that abandonment should not occur at the earliest possible date that the above abandonment condition was satisfied, but rather at the date that yielded the highest net present value over all future abandonment opportunities. Later, Howe and McCabe (1983) highlighted the patterns of cash flows and scrap values under which the model led to a unique global optimum of the abandonment time. They also characterized the complete range of models that could be obtained by varying the owner's profit horizon and clarified the practical guidelines for the choice between and models. Theoretical economists, on the other hand, continued to work in the tradition of Terborgh (1949) and Smith (1961) by assuming invariably that the owner's profit horizon is infinite. This in turn led them to concentrating on a single class of replacement models, all of which presumed that the infinite reinvestments took place at equal time intervals. This pervasive conceptualization was adopted in all significant contributions in the area from Brems (1968) to Nickel (1975), Rust (1987) and to Mauer and Ott (1995). …

CONSUMPTION AND GROWTH FROM A RICARDIAN PERSPECTIVE*

ABSTRACTA new way of imposing the Ricardian closure is proposed through a dynamic consumption function along Keynesian lines. The dynamic consumption function relates consumption to current income and to the accumulated stock of consumer durables. In this way the dynamics of consumption and effective demand become dependent on consumer spending on durables. Using the dynamic consumption function within a simplified Harrod–Domar growth framework, it is shown that there is no independent consumption function in the long run as the Ricardian closure implies. The long‐run propensity to consume is an equilibrium relation, not a behavioural parameter.

Intertemporal monopolistic pricing of non-durables

This paper provides a tractable analytical framework to study intertemporal equilibria between non-competitive supply and dynamic demand for non-durable goods. The basic hypothesis is that consumers enjoy utility from particular services rather than from commodities. Consumption of the non-durable good follows a dynamic pattern, because it depends on the stock of durables and energy demand provides the prototypical example, e.g., mobility, thermal comfort, etc. are the output of a combination of durable and non-durable goods. Indeed, turmoils in energy markets are to a great deal due to short run inflexibility and this gives this theoretical paper a topical flavour. The outcomes differ substantially across the strategic setups while differences in expectations (myopic versus rational) matter only transiently but not in the long run.

On the role of market insurance in a dynamic model

Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance.

Durable Goods, Time Preference and The Dynamics of the Current Account

A small open economy model with an endogenous time preference is used to study the current account dynamics when consumption exhibits durability. There is a unique level of instantaneous utility and stock of durables that must be maintained in the steady state. A terms of trade deterioration requires a net asset accumulation and a fall in consumption expenditures along the adjustment path. Nevertheless, the fall in consumption expenditures leads to a fall in the stock of durables, which has to be corrected somewhere along the adjustment path, and which may lead to a non-monotonic adjustment of the current account (J-curve).

What Does the Durables Price - Over - The Rental Cost Valuation Ratio Tell us about Asset Prices?

I propose a new valuation ratio: durables price over the rental cost of capital, which is a direct analogue of the price-dividend ratio. I show that it is a rational forecast of future discount rates and future growth rates of the rental cost. In order to impute the unobservable rental cost, I develop a dynamic rational expectations economy with Beckerian household production. Investors' preferences are defined over the nondurables and the services flow from the household capital, the stock of durables. I assume investors produce services flow in the household sector. I carefully model the sector's returns to scale and find decreasing returns to scale in the household capital, ceteris paribus. The result is crucial as specifications used in the previous literature lead to a misspecified rental cost of capital, and thus errors-in-variables problems in predictive regressions. In contrast to price-dividend ratio, I construct the durables price-rental cost valuation ratio as an affine function of a co-integrating residual. I evaluate its predictive power and discover that it strongly forecasts excess returns on 25 Fama-French portfolios, especially small and value stocks. In particular, I can predict small-minus-big portfolio (SMB) with $R^2$ around 30\% at 4 year horizon

Durability in consumption and the dynamics of the current account

In a model with durable goods and Ricardian production technology, an increase in government expenditure increases the steady-state level of employment and reduces consumption. The country runs a current account surplus. The two-factor model with costly investment, akin to Turnovsky and Sen (Oxford Econom. Pap. 43 (1991) 1) confirms all the basic results of the simple model except for the current account balance. The increase in capital has a negative effect; whereas a decrease in the stock of consumer durables has a positive effect on the purchase of foreign bonds – thus creating an ambiguous effect on the current account balance. Moreover, the current account will likely exhibit non-monotonic adjustment.

Precautionary Savings and the Wealth Distribution with Illiquid Durables

We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function and the width of the inaction region. We are particularly interested in parameterizations which increase the precautionary motive for saving through an increase in committed expenditure risk. We find, for an empirically relevant share of durable consumption and for all transaction costs below an upper threshold, that the level of precautionary savings is increasing in the transaction costs. Transaction costs have only a modest impact on the degree of wealth dispersion, as measured by the Gini index, as the associated increase in savings is close to linear in wealth. While we are unable to match the dispersion of wealth in the data, we increase the dispersion over a single asset model (Gini index of .71 for financial assets and .37 for total wealth) and we are able to match the relative dispersion of financial to durable assets, i.e. we find financial assets much more unequal than durable assets. We also match the ratio of housing wealth to total wealth for the median agent. We calibrate the model to data from the PSID, the CES, and the SCF.

Precautionary Savings and the Wealth Distribution with Illiquid Durables

We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function and the width of the inaction region. We are particularly interested in parameterizations which increase the precautionary motive for saving through an increase in "committed expenditure risk." We find, for an empirically relevant share of durable consumption and for all transaction costs below an upper threshold, that the level of precautionary savings is increasing in the transaction costs. Transaction costs have only a modest impact on the degree of wealth dispersion, as measured by the Gini index, as the associated increase in savings is close to linear in wealth. While we are unable to match the dispersion of wealth in the data, we increase the dispersion over a single asset model (Gini index of .71 for financial assets and .37 for total wealth) and we are able to match the relative dispersion of financial to durable assets, i.e. we find financial assets much more unequal than durable assets. We also match the ratio of housing wealth to total wealth for the median agent. We calibrate the model to data from the PSID, the CES, and the SCF.

Quality differentiation of durable goods in secondary markets

This paper presents a framework to study how changes in exogenous parameters, such as quality levels of new and used durables, affect the composition of durable good stocks. Our model extends the previous literature by including the endogeneity of prices and qualities. Our results could be applied to evaluate policies for controlling the externality level associated with the use and quality of durable goods in the long-term. We studied the characterization of the demand under a special situation: the consumer can choose the operation and/or maintenance level in the period the durable goods are new, which determines the quality levels for the subsequent periods. Comparative statics is performed to analyze the effects of exogenous variable change on the composition of durable stocks, and thus its impact on the externality level associated with each quality level. Contrary to most expectations, we provide an example in which the regulator imposes stricter quality standards for new durables to decrease negative externality associated with the use of durables. In this example, the comparative static results show that policies focusing only on new durable externality control may turn out to increase total externality, since stocks of older vintages may increase.

Consumption, Durable Goods, and Transaction Costs

We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.

Consumption, Durable Goods, and Transaction Costs

We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.