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Habits and heterogeneity in demands: a panel data analysis

Author

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  • M. Dolores Collado

    (Department of Economics, Alicante University, Carretera de San Vicente s|n, 03080 San Vicente-Alicante, Spain)

  • Martin Browning

    (Department of Economics, University of Oxford, Manor Road, Oxford, OX1 3UQ, UK)

Abstract

We examine demand behaviour for intertemporal dependencies, using Spanish panel data. We present evidence that there is both state dependence and correlated heterogeneity in demand behaviour. Our specific findings are that food outside the home, alcohol and tobacco are habit forming, whereas clothing and small durables exhibit durability. We conclude that demand analyses using cross-section data that ignore these effects may be seriously biased. On the other hand, the degree of intertemporal dependence is not sufficiently strong to make composite 'consumption' significantly habit forming, as has been suggested in some recent analyses. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • M. Dolores Collado & Martin Browning, 2007. "Habits and heterogeneity in demands: a panel data analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 625-640.
    • Handle: RePEc:jae:japmet:v:22:y:2007:i:3:p:625-640
    DOI: 10.1002/jae.952
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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