Consumption Externalities, Habit Formation and Equilibrium Efficiency
AbstractWe analyze the welfare properties of the competitive equilibrium in a capital accumulation model where individual preferences are subject to both habit formation and consumption spillovers. Using an additive specification for preferences, according to which the argument in the utility function is a linear combination of present and past values of own consumption and consumption spillovers, we analyze the circumstances under which these spillovers are a source of inefficiency. It is shown that consumption externalities have to interact with habits in order to generate an inefficient dynamic equilibrium. Finally, we characterize optimal tax policies aimed at restoring efficient decentralized paths. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.
Volume (Year): 106 (2004)
Issue (Month): 2 (06)
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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442
Other versions of this item:
- Jaime Alonso-Carrera & Jordi Caballe & Xavier Raurich, 2001. "Consumption Externalities, Habit Formation, and Equilibrium Efficiency," UFAE and IAE Working Papers 499.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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