Discussing ‘Dynamics of Households’ Consumption and Housing Decisions’ by Thierry Magnac and Christophe Bruneel

Rice Conference Paris 2024

Florian Oswald
florian.oswald@sciencespo.fr

SciencesPo Paris

15 June, 2024

Overview

  • Paper in the best tradition of careful investigation of identification in complex structural models.
  • Novel result on joint identification of exogenous moving shock and fixed costs of moving.
  • Promising results from beginnings of structural estimation.

👍

  • Paper is still much work in progress.
  • I will pose some clarifying questions, hopefully helpful.

Overview

  • Dynamic Housing Demand models are complex: mixed discrete (move/not) - continuous (size of house, assets, consumption) choices
  • Most (macro) papers rely on strict parameterization of moving costs.
  • Proofs of identification is rare in this literature.

Clarifying Questions

Clarifying Questions

What is correct form of utility?

  • Is this correct? how does this affect substitution between \(c\) and \(s\)?

Bajari et al. (2013)

It seems you are following this paper closely. I did look at their utility function to try and understand better.

Clarifying Questions

What is the contribution of the paper?

  • Very lengthy literature section which tries to cover a lot of different literatures.

  • Define the contribution early on.

  • The potential policy experimens remain somewhat vague.

  • I think the proofs leading to identification are impressive and should be (part of) the main contribution.

Clarifying Questions

What is \(\eta\) ?

👉 Tell us early on.

👉 It’s not clear why we need 2 utility shocks \(\epsilon\) and \(\eta\).

👉 The existence of the entire paper hinges on it, so tell us more about it: Is it unobserved preference heterogeneity? But it’s time varying. Which features of the data will identify it?

👉 Relate to other approaches to model unobserved heterogeneity which discretize types?

Clarifying Questions

Table 1

Main Comments

Main Comments

\(s\) is not Quality

(a) An 80 \(m^2\) Flat.
(b) An 80 \(m^2\) Flat.
Figure 1: Two identical flats.

Main Comments

\(s\) is not Quality

  • Quality might differ across \(d\) (Halket, Nesheim, and Oswald 2020)
  • An owner of a 80 m2 flat who moves from Paris to an 80 m2 (owned) flat in Lyon is not moving in the model. Clearly moves in reality.
  • The location (area, neighborhood) is potentially an important determinant of moving choices. Given \(s\) is defined as size, this characteristic of the house i smissing.
  • Affects choices via shock \(p^m\). Some discussion and expected size of biases should be added. What fraction of movers go to a different neighorhood/city/area and into same \(s\)?

Main Comments

\(s\) is not Quality

Main Comments

Proving Separate Identification of Objects

  • Should probably be the focus of the paper.

Computation

Computational Concerns?

  • What are the computational implications of the method? We do not get many insights into computational performance. Usually, models of this kind face binding constraints in terms of computational feasibility.
  • In that sense, how does this method compare to recent advances by Iskhakov et al. (2017) Druedahl and Jørgensen (2017) or Oswald (2019) and similar efforts?

End

References

Bajari, Patrick, Phoebe Chan, Dirk Krueger, and Daniel Miller. 2013. “A DYNAMIC MODEL OF HOUSING DEMAND: ESTIMATION AND POLICY IMPLICATIONS.” International Economic Review 54 (2): 409–42. http://www.jstor.org/stable/24517173.
Druedahl, Jeppe, and Thomas Høgholm Jørgensen. 2017. “A General Endogenous Grid Method for Multi-Dimensional Models with Non-Convexities and Constraints.” Journal of Economic Dynamics and Control 74: 87–107. https://doi.org/https://doi.org/10.1016/j.jedc.2016.11.005.
Halket, Jonathan, Lars Nesheim, and Florian Oswald. 2020. “The Housing Stock, Housing Prices, and User Costs: The Roles of Location, Structure, and Unobserved Quality.” International Economic Review 61 (4): 1777–1814.
Iskhakov, Fedor, Thomas H Jørgensen, John Rust, and Bertel Schjerning. 2017. “The Endogenous Grid Method for Discrete-Continuous Dynamic Choice Models with (or Without) Taste Shocks.” Quantitative Economics 8 (2): 317–65.
Oswald, Florian. 2019. “The Effect of Homeownership on the Option Value of Regional Migration.” Quantitative Economics 10 (4): 1453–93.

Rice Conference Paris 2024