Effect of ageing on the ownership of durable goods

DOIhttp://doi.org/10.1111/sjpe.12131
Date01 November 2017
Published date01 November 2017
EFFECT OF AGEING ON THE
OWNERSHIP OF DURABLE GOODS
Anik
oB
ır
o*
ABSTRACT
I analyse how ageing affects the demand for non-housing durable goods. Based
on the English Longitudinal Study of Ageing, individual characteristics, cohort
and time effects can explain most of the age variation in the ownership and pur-
chase of durable goods. A life-cycle model is derived to capture the complex
relation between ageing and the demand for non-housing durable goods. Decreas-
ing survival probability, deteriorating health and changing preferences are jointly
reflected in the age gradient of demand. Simulations indicate that higher chances
of survival increase the ownership ratio of the durable items.
II
NTRODUCTION
I analyse the effect of ageing on the demand for non-housing durable goods
(henceforth durable goods). One would expect that as people get older, they
invest less in durable goods as they have shorter remaining lifetime to enjoy
the use value of these goods. However, this relation is not trivial; the shorter
remaining lifetime might make the investment in durable goods less desirable.
However, the utility derived from some durable goods might increase with age
due to longer hours spent at home. Empirical evidence indeed suggests that
the demand for some durable goods (e.g. televisions) is increasing with age.
Unlike in the case of housing, decisions on non-housing durable good owner-
ship are made regularly, but unlike in the case of non-durable consumption,
the decision still has consequences for future utilities derived from the good.
Thus, the trade-off implied by higher use value vs. shorter remaining lifetime
is more relevant in the case of non-housing durable goods than housing dur-
able goods or non-durable consumption. In addition, increasing longevity can
have a different effect on the demand for different types of durable goods. I
discuss these differences in details in this paper.
With increasing expected lifetime, the expenditures of older people have a
rising share in aggregate household expenditures. According to UK statistics
(Office for National Statistics (2010)), total household expenditures decrease
*The University of Edinburgh, Corvinus University of Budapest
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12131, Vol. 64, No. 5, November 2017
©2017 Scottish Economic Society.
501
with age above age 30, but the share of expenditures on household goods and
services within total expenditures increases with age. The aggregate share of
these expenditures was 6.4% in 2008, but higher for older age groups: 7.4%
at age 6574 and 8.1% at age 75 and above. Focusing on ownership, my aims
in this paper were to understand better the age pattern of the ownership of
durable goods at age 50 and above, and to investigate how increasing longev-
ity affects ownership. The results extend our knowledge not only to the
demand for non-housing durable goods but also to a study of the welfare of
people at older ages.
I will provide descriptive evidence for the age pattern of durable ownership
using the English Longitudinal Study of Ageing. This survey hence presents
rich information on the ownership and purchases of and expenditures on dur-
able goods. The age coverage of the sample (age 50 and above) makes it pos-
sible to focus on the effects of ageing. Although some of the analysed goods
have very high (above 80%) ownership rates, the age patterns of ownership
and purchases still differ across different categories of durable goods. In par-
ticular, there are striking differences in the age patterns of ownership of goods
that are leisure complements and require little technical knowledge (e.g. televi-
sions) and goods whose use require good mental and physical health (e.g.
computers).
To understand the complex relations between ageing and the demand for
durables, theoretical analysis and simulations are needed. Decreasing sur-
vival probabilities, declining health and changing preferences are all differ-
ent aspects of the ageing process, influencing the demand for durables. I
develop a life-cycle model which takes into account that durable good
ownership is a binary choice. I allow ownership to change every 10 years.
The model is based on an uncertain lifetime, taking into account interac-
tions between durable good ownership and non-durable consumption.
Hence, it allows the utility weight of durable goods to depend on health
and age.
Simulation exercises are then applied to illustrate the model’s results. When
possible, the simulations are based on standard parameter values from the lit-
erature. I will analyse the influence of discounting, health and of changing
longevity on two types of durable goods, namely televisions and computers.
In the Appendix, I will also look at the effects of bequest motives and retire-
ment.
The results indicate that, conditional on the constant annual income (hence
spending power) of elderly people, with population ageing we should expect
to see increasing demand for non-housing durable goods. This is partly due to
increasing longevity and partly due to the higher utility attached to some
types of durable items at older ages. Notably, such items are goods that are
leisure complements, where the use of which does not require good mental or
physical health.
The rest of the paper is structured as follows. I review the related literature
in section 2. Section 3 presents the data used in the empirical analysis, fol-
lowed by empirical evidence of the effects of ageing in section 4. The life-cycle
502 ANIK
OB
IR
O
Scottish Journal of Political Economy
©2017 Scottish Economic Society

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