DYNADEM · Dynamics of Automobile Demand

Understanding consumer behavior is an important task of economics. An automobile is the largest item most individuals will ever purchase (besides a home), hence economists have dedicated much effort in analyzing the factors that determine automobile purchase decisions. Important methodological advances in the 1990s have made possible the estimation of rich static demand models for differentiated products like automobiles. More recently, attention has shifted to dynamic aspects of consumer behavior. Durable goods pose a challenge because consumer purchase decisions depend not only on the currently available choices but also on expectations of future choices and their characteristics. They also depend on current holdings of the durable; consumers own a stock of durables which they may expand, shrink or upgrade over their lifetime according to their needs. One of the limitations of existing research is that it relies primarily on aggregate data as there is no information on consumers’ purchasing patterns over their lifetime. The proposed project aims to make a contribution to the literature by exploiting a unique dataset that records every vehicle registered in Cyprus since 1970. As of 1987, the dataset also records transfers of ownership and an identification number for the vehicle’s owner. Thus we can track every vehicle’s entire ownership history and each individuals' automobile holdings over time. We are not aware of any existing work utilizing data of such scope. A comprehensive descriptive analysis of this unique dataset will provide valuable insights into consumer behavior in durable good markets and will guide us in constructing tractable but also realistic dynamic models of consumer behavior. Such models are important for evaluating the long-term effects – at both the microeconomic and the macroeconomic level - of policies such as taxation, environmental regulation, scrapping subsidies, vehicle inspection regimes, and imports of used automobiles.