| Abstract: | The purchase of an automobile involves significant transaction costs in addition to the purchase price. Therefore, the assumptions implied by static car holding models are invalid. This paper describes a dynamic approach to the modeling of level-of-ownership and auto-type choice, based on a transaction choice model which utilizes information on past car ownership. The cost or disutility of a transaction depends on the attributes of the household and the purchased car, as well as on past car-ownership characteristics. A set of assumptions underlying the incorporation of transaction costs in the model is presented. The paper discusses the econometric implications of omitting the dynamic attributes (i.e., past ownership characteristics). A disaggregate model was estimated, using a choice-based sample consisting of a random sample of households enriched with a sample of households which transacted in the car market during the study period. This sampling method combined with a random choice of a subset of the car alternatives provides for a cost-effective method to estimate a transaction model. |
