# Saturation of durable goods

It seems one factor ignored (or is it?) in economic theory is saturation of durable goods. By this I mean the fulfillment of fixed need for durable goods.

We can imagine income to be divided between consumables, durable goods, capital investments (like real property) and savings. Spending on durable goods is often equated to that on consumables, but this does not seem right to me.

For me personally, for example, I notice that I am spending less money overall and saving more money, not because I want to save more, but because I have simply bought all the stuff I need. After 30 years of buying tools, appliances, books, furniture I literally have every single tool and appliance I need. Ten years ago I was still buying all kinds of stuff, drill presses, rotary saws, juicers, you name it. But now that I have all that stuff I don't need to buy anymore. I mean I don't need two lathes, I just need one lathe.

So, especially if we consider a static or aging population there would seem to be an effect whereby the population is "all tooled up" and no longer needs to spend on durable goods (except for maintenance purposes). Is this phenomenon recognized by any economic theory?

## 1 Answer

"Durable goods" are a form of utility-generating capital. But they are capital, and what is actually generating utility is the flow of services from them, not them directly. So when we buy a durable good, this is not consumption, it is investment. The phenomenon of uneven intertemporal allocation of purchasing expenses in durable goods is not related to "saturation", in the sense the word is used in microeconomic theory: saturation and non-saturation is a static concept. Intertemporally, the capital stock may very well decline, as an optimal choice : we pile up capital early on, and then, the rate of usage is greater than the rate of further accumulation: we use what we have bought in the past, wearing down the stock.

The right way to model durable goods (and it has been done of course), is to specify a utility function like

$$U = U(C, h(D))$$

where $C$ are non-durable goods and $h(D)$ is the service-flow function related to durables $D$. Sometimes we simply write $C_D$ (consumption of the service flow). The difference is that the stock of durable goods is a state variable, alongside any other state variables the model has.

As a recent example of a theoretical model (not a canonical one), see the paper
Mansoorian, A., & Michelis, L. (2010). Monetary policy in a small open economy with durable goods and differing cash-in-advance constraints. Economics Letters, 107(2), 246-248.

Public Capital also enters sometimes the utility function, to represent the services flow that come from public infrastructure (contrasted to current public expenses). See for example

Chatterjee, S., & Ghosh, S. (2009). Public goods, congestion, and fiscal policy: Do consumption-based instruments matter?

• this does not seem to address the issue of saturation? – HRSE Oct 16 '15 at 2:03
• @HREcon I expanded a little. – Alecos Papadopoulos Oct 16 '15 at 7:23