Identification and Estimation of Forward-looking Behavior: The Case of Consumer Stockpiling

We develop a new empirical strategy for identifying discount factors in markets for storable goods. The identification strategy rests on an exclusion restriction generated by discontinuities in package sizes: In storable goods product categories where consumption rates are exogenous and package sizes are discrete, current utility does not depend on inventory unless a package gets used up. Most of the time, inventory only enters a consumer’s expected future value. We demonstrate using artificial data experiments that discount factors can be identified in these circumstances. We also demonstrate the feasibility of our identification strategy with an empirical exercise, where we estimate a stockpiling model using scanner data on laundry detergents. Preliminary estimates suggest that consumers are not as forward-looking as most papers in the literature assumes, with weekly discount factors averaging at about 0.91, which is significantly lower than the value used in previous research (it typically is set at 0.99, using the market interest rate).