Optimal replacement: An extension to consumer durables

Abstract

The problem of determining the optimal procedure for the replacement of capital or military equipment has been the subject of numerous studies. However, having been conceived and developed in conjunction with investment and inventory, the study of optimal replacement has never been effectively extended to the area of consumer durable goods. The primary objective of this paper is to study such a problem within the inter-temporal utility maximization framework in which a consumer has a finite, fixed time horizon and derives satisfaction from the consumption of both durable and non-durable goods. In particular, family housing is used to illustrate the choice process