Financial Returns to Household Inventory Management; Lorenz Kueng (Universita della Svizzera italiana, Northwestern)

Abstract

Households tend to hold substantial amounts of non-financial assets in the form of inventory.
Households can obtain significant financial returns from strategic shopping and optimally managing these inventories of consumer goods. In addition, they choose to maintain liquid savings –
household working capital – not just for precautionary motives but also to support this inventory
management. We demonstrate that households earn high returns from inventory management
at low levels of inventory, though returns decline rapidly as inventory levels increase. We provide evidence using scanner and survey data that supports this conclusion. High returns from
inventory management that are declining in wealth offer a new rationale for poorer households
not to participate in risky financial markets, while wealthier households invest in both financial
assets and working capital.

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