Automobile replacement: a dynamic structural approach

This article specifies and estimates a structural dynamic model of consumer demand for new and used durable goods. Its primary contribution is to provide an explicit estimation procedure for transaction costs. Identification of transaction costs is achieved from the variation in the share of consumers choosing to hold a given car type each period, and from the share of consumers choosing to purchase the same car type that period. Specifically, I estimate a random-coefficient discrete-choice model that incorporates a dynamic optimal stopping problem. I apply this model to evaluate the impact of scrappage subsidies on the Italian automobile market.