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Consumption theory with reference dependent utility

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  • Andersson, Fredrik W.
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    Abstract

    This paper presents a closed form consumption function for an individual when his utility depends both on his own current and previous consumption and on the consumption by his relevant others. Given this model, I argue that we can introduce an alternative definition of marginal propensity to consume (MPC) in addition to the traditional definition. This alternative definition can be called the individual's total MPC, which I show is smaller than the traditional MPC.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 38 (2009)
    Issue (Month): 3 (June)
    Pages: 415-420

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    Handle: RePEc:eee:soceco:v:38:y:2009:i:3:p:415-420

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Consumption decision Consumption by relevant others Habit-formation behavior Marginal propensity to consume;

    References

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    1. Scitovsky, Tibor, 1992. "The Joyless Economy: The Psychology of Human Satisfaction," OUP Catalogue, Oxford University Press, number 9780195073478, September.
    2. 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).
    3. J. Solnick, Sara & Hemenway, David, 1998. "Is more always better?: A survey on positional concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 373-383, November.
    4. Andrew B. Abel, 1990. "Asset Prices under Habit Formation and Catching up with the Joneses," NBER Working Papers 3279, National Bureau of Economic Research, Inc.
    5. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, octubre-d.
    6. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    7. Carroll, Christopher D & Overland, Jody & Weil, David N, 1997. " Comparison Utility in a Growth Model," Journal of Economic Growth, Springer, vol. 2(4), pages 339-67, December.
    8. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
    9. Andersson, Fredrik W., 2008. "Is concern for relative consumption a function of relative consumption," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 353-364, February.
    10. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
    11. Carroll, Christopher D., 2000. "Solving consumption models with multiplicative habits," Economics Letters, Elsevier, vol. 68(1), pages 67-77, July.
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