THE LIFETIME OF A DURABLE GOOD

THE LIFETIME OF A DURABLE GOOD

THEORY AND DECISION LIBRARY General Editors: W. Leinfellner and G. Eberlein Series A: Philosophy and Methodology of the Social Sciences Editors: W. Leinfellner (Technical University of Vienna) G. Eberlein (Technical University of Munich) Series B: Mathematical and Statistical Methods Editor: H. Skala (University of Paderborn) Series C: Game Theory, Mathematical Programming and Operations Research Editor: S. H. Tijs (University of Nijmegen) Series D: System Theory, Knowledge Engineering and Problem Solving Editor: W. Janko (University of Economics, Vienna) SERIES A: PIDLOSOPHY AND METHODOLOGY OF THE SOCIAL SCIENCES Volume 12 Editors: W. Leinfellner (Technical University of Vienna) G. Eberlein (Technical University of Munich) Editorial Board M. Bunge (Montreal), I. S. Coleman (Chicago), M. Dogan (Paris), J. Elster (Oslo), L. Kern (Munich), I. Levi (New York), R. Mattessich (Vancouver), A. Rapoport (Toronto), A. Sen (Oxford), R. Tuomela (Helsinki), A. Tversky (Stanford). Scope This series deals with the foundations, the general methodology and the criteria, goals and purpose of the social sciences. The emphasis in the new Series A will be on wellargued, thoroughly analytical rather than advanced mathematical treatments. In this context, particular attention will be paid to game and decision theory and general philosophical topics from mathematics, psychology and economics, such as game theory, voting and welfare theory, with applications to political science, sociology, law and ethics. For a list of titles published in this series, see final page.

GERRIT ANTONIDES Erasmus University Rotterdam THE LIFETIME OF A DURABLE GOOD An Economic Psychological Approach KLUWER ACADEMIC PUBLISHERS DORDRECHT / BOSTON / LONDON

Library of Congress Cataloging in Publication Data Antonldes. Gerrlt. 19~1- The Ilfetlme of a curable good an economlc psychologlcal approach Gerrlt Antonldes. p. cm. -- <Theory and decision Ilbrary ; v. 12. Serles A, Phi losophy and methodology of the social sciences) 1. Product I ife cycle. 2. Durable goods, Consumer. 3. Consumers -Attitudes. I. Tltle. II. Series, Theory and decision library v. 12. III. Serles, Theory and decislon library. Serles A, Ph i losophy and methodo logy of the soc 1 a I sc i ence. Hr5415.155.A58 1990 658.5--dc20 89-26693 ISBN-13: 978-94-010-7365-3 e-isbn-13: 978-94-009-1938-9 DOl: 10.1007/978-94-009-1938-9 Published by Kluwer Academic Publishers, P.O. Box 17,3300 AA Dordrecht, The Netherlands. Kluwer Academic Publishers incorporates the publishing progranuncs of D. Reidel, Martinus Nijhoff, Dr W. Junk and MTP Press. Sold and distributed in the U.S.A. and Canada by Kluwer Academic Publishers, 101 Philip Drive, Norwell, MA 02061, U.S.A. In all other countries, sold and distributed by Kluwer Academic Publishers Group, P.O. Box 322,3300 AH Dordrecht, The Netherlands. Printed on acid-free paper All Rights Reserved 1990 by Kluwer Academic Publishers Softcover reprint of the hardcover 1 st edition 1990 No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the copyright owner.

To MARGIE

TABLE OF CONTENTS PREFACE ix CHAPTER 1 / INTRODUCTION CHAPTER 2 / UTILITY AND ATTITUDE 13 CHAPTER 3 / CHOICE BEHAVIOR WITH RESPECT TO DURABLE CONSUMPTION GOODS 33 CHAPTER 4 / MODELS FOR SCRAPPING DURABLE CONSUMPTION GOODS 73 CHAPTER 5 / AN EMPIRICAL MICRO-MODEL OF SCRAPPING BEHAVIOR 87 CHAPTER 6/ RELIABILITY AND SURVIVAL OF A DURABLE CONSUMPTION GOOD 169 CHAPTER 7 / EVALUATION AND APPUCATIONS 219 REFERENCES 235 AUTHOR INDEX 247 SUBJECT INDEX 251

PREFACE As a psychologist by education, my interest is in how people solve problems. At the Economic Institute of Leyden Universi ty, I learned that economists study human behavior too, although their studies are limited to economic affairs. At the Institute of Scientific Research on Consumer Affairs (SWOKA), I became aware of the needs of consumer organizations and the government for consumer research to base their policy on. At Erasmus University Rotterdam, I got the opportunity to integrate my interests and knowledge into this book. The first part of the book attempts to integrate psychological theories of attitude, perception, motivation and decision into economics. Both disciplines are concerned with human behavior, and the economic paradigm of demand, subj ect to restrictions, is combined with the psychological tradition of direct measurements of perceptions and motivations. This results in a micro-model of economic choice that can be tested by means of information obtained directly from consumers. The empirical study deals with the problem of scrapping a durable consumption good. By means of a consumer survey, the micro-model of choice is applied to the decision to scrap a durable good, or to repair the good in case of a defect. This individual decision obviously is connected with the large scale problem of waste, and with the manufacturer's problem of producing durable goods with a certain quality and durabili ty. A separate part of the study deals with the reliability and the lifetime of a durable good. Econometric techniques ix

x PREFACE have been used to estimate the failure rate during the lifetime of the good. Also, the survival function of a good has been assessed without complete knowledge of the lifetimes of the goods in the survey. The study has a number of implications for consumer policy and for the policy of the manufacturer of a durable consumption good. The determinants of the scrapping decision may be used in consumer information given by the government or by consumer organizations. The estimation techniques of reliability and expected lifetime of durable consumption goods can be applied in guidance by consumer organizations and in the planning of the production of durable goods by manufacturers. In the long run, consumers in the present and in the future may benefit from this information. During my appointment at the Institute of Scientific Research on Consumer Affairs (SWOKA), the survey data on scrapping and repair of washing machines have been collected by Intomart BV. At that time, the idea of a dissertation, to be supervised by Fred van Raaij and Arie Kapteyn, came up. Fred van Raaij offered me a position at Erasmus University Rotterdam, and Arie Kapteyn intensively stimulated and guided my research efforts. Both of these promotores are thanked for the reading and correcting of several drafts of the manuscript. SWOKA is acknowledged for the permission to use the survey data for my purposes. George Moerkerke did many of the preparatory calculations. Frans Verweijen of the Erasmus Rekencentrum (ERC) assisted in case of computational problems (there were many of such cases). In the early stages of the research project, the manuscript was typed by Gemma Schmitz and Wilma Speijer-v.d. Burgt on machines that are deemed out

PREFACE xi of date now. After the conversion to modern personal computers, the manuscript had to be edited again and the assistance of Gemma Schmitz and Joke van Oost-Leemans is appreciated. Gerrit Antonides Assistant Professor of Economic Psychology Erasmus University Rotterdam The Netherlands July 1989