From Consumer Incomes to Car Ages: How the Distribution of Income Affects the Distribution of Vehicle Vintages

This paper studies the relationship between consumer incomes and ages of the durable goods consumed. At the household level, it presents evidence from the Consumer Expenditure Survey of a negative correlation between incomes and ages of the vehicles owned, controlling for the size of the vehicle stock. At the aggregate level, it constructs a dynamic, heterogeneous agents, discrete choice model with multiple vehicle ownership, to study the relationship between the distribution of consumer incomes and the distribution of vehicle vintages. Two versions of the model are solved, one with the restriction of at most one vehicle per agent and one with multiple vehicle ownership. For each version of the model, the parameters are calibrated to match vehicle ownership data for 2001. The moments of the income distribution are then varied to generate predictions for mean and median ages of vehicles and the results from the two versions of the model are compared. While these are mostly similar, some of the differences are quite illuminating.

Can Increases in Real Consumer Incomes Explain the Aging of Motor Vehicles in the US?

The average age of vehicles in the US has increased by more than 40 percent since the early 1960s. Over the same time period, consumer incomes on average have been growing faster than prices of new vehicles. This paper asks whether greater affordability of vehicles and the resulting increase in vehicle ownership among lower-income consumers can explain some of the aging of vehicles in the US. Consumers with lower incomes are more likely to purchase used vehicles and hold on to them longer, so their decisions affect the age composition of the vehicle population. I evaluate this hypothesis using a dynamic, non-stationary, heterogeneous agents model, with consumer incomes and prices of new vehicles growing over time at the rates calibrated from the data. The agents in the model buy and sell both new and used vehicles. These vehicles are differentiated by age-dependent quality (high, medium and low), with the assumption that older vehicles are more likely to be of poorer quality. The prices of used vehicles depend on their quality level and are allowed to change over time at endogenous rates. The estimated model predicts a significant increase in the average age of vehicles from 1967 to 2001. The conclusion is that consumer incomes are an important factor in vehicle ownership decisions, including the ages of vehicles held, and changes in incomes have contributed to the aging of the vehicle stock in the US.motor vehicles; heterogeneous agents models; intertemporal consumer choice; discrete choice

The Value of Commitment: Marriage Choice in the Presence of Costly Divorce

Two individuals may choose to enter a coresidential relationship, which may or may not include joint property ownership and raising children. In addition to that, individuals may decide to formalize this contractual relationship by holding a marriage ceremony. The literature on coresidential relationships typically assumes that the formal marriage contract offers additional tangible benefits to the couple. However, this assumption is not obvious, and these potential benefits (or costs) may vary greatly across societies and time. What remains invariant, however, is the typically higher costs of terminating a relationship that has been “sealed” by marriage. The goal of this paper is to develop a simple dynamic model that can explain the existence of marriage contract. The model assumes that the only difference between marriage and non-marital cohabitation is the higher contract termination cost associated with marriage, and that the agents are free to enter either type of relationship contract. The quality of the match evolves randomly and independently over time, and every period each of the paired agents makes his or her decision on whether to stay in the given relationship or terminate it and seek another one based on the current match quality and expectations about the future. The relationship survives only if both agents choose to not terminate it. The unilateral decision to end a relationship by one agent may impose a negative externality on her partner, if he still would prefer to maintain it. The main finding is that when break-up costs are sufficiently high, choosing a marriage contract that provides even higher termination cost may reduce the expected break-up externality and result in greater welfare.family economics, marriage, cohabitation, externalities