Envy and habits: panel data estimates of interdependent preferences
AbstractWe estimate the importance of preference interdependence from consumption choices. Our strategy follows the literature that tests the constraints imposed by optimality in the evolution of individual consumption. We derive a Euler equation from a preference specification that allows for non-separabilities across households and across time. The introduction of habits and envy places additional restrictions on the evolution of the optimal consumption path. We use a unique data set that follows a sample of 3,200 households for up to eight consecutive quarters to test these restrictions. Our estimates suggest that, if one defines utility over consumption services, a large fraction of these services is relative, with one-quarter of the weight placed in the consumption of the reference group and more than one-third of the weight placed in the agent’s past consumption
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1213.
Length: 48 pages
Date of creation: Mar 2012
Date of revision:
Consumption externalities; habit formation; envy; panel data;
Other versions of this item:
- Casado, Jose Maria & Alvarez-Cuadrado, Francisco & Labeaga, Jose Maria & Sutthiphisal, Dhanoos, 2012. "Envy and habits: Panel data estimates of interdependent preferences," UNU-MERIT Working Paper Series 054, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael T. Kiley, 2007.
"Habit persistence, non-separability between consumption and leisure, or rule-of thumb consumers: which accounts for the predictability of consumption growth?,"
Finance and Economics Discussion Series
2007-48, Board of Governors of the Federal Reserve System (U.S.).
- Michael T. Kiley, 2010. "Habit Persistence, Nonseparability between Consumption and Leisure, or Rule-of-Thumb Consumers: Which Accounts for the Predictability of Consumption Growth?," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 679-683, August.
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Campbell, John Y & Deaton, Angus, 1989.
"Why Is Consumption So Smooth?,"
Review of Economic Studies,
Wiley Blackwell, vol. 56(3), pages 357-73, July.
- Howarth, Richard B., 2006. "Optimal environmental taxes under relative consumption effects," Ecological Economics, Elsevier, vol. 58(1), pages 209-219, June.
- repec:bla:restud:v:77:y:2010:i:4:p:1382-1402 is not listed on IDEAS
- Raquel Carrasco & José M. Labeaga & J. David López-Salido, 2005.
"Consumption and Habits: Evidence from Panel Data,"
Royal Economic Society, vol. 115(500), pages 144-165, 01.
- Carrasco, Raquel & Labeaga Azcona, J Maria & López-Salido, J David, 2002. "Consumption and Habits: Evidence from Panel Data," CEPR Discussion Papers 3520, C.E.P.R. Discussion Papers.
- Carrasco, Raquel & Labeaga, José M. & Lopez-Salido, J. David, 2005. "Consumption and habits : evidence from panel data," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4923, Universidad Carlos III de Madrid.
- Raquel Carrasco & José M. Labeaga & J. David López-Salido, 2002. "Consumption And Habits: Evidence From Panel Data," Economics Working Papers we023415, Universidad Carlos III, Departamento de Economía.
- M. Dolores Collado & Martín Browning, 2006.
"Habits And Heterogeneity In Demands: A Panel Data Analysis,"
Working Papers. Serie AD
2006-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- 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.
- Martin Browning & M. Dolores Collado, 2004. "Habits and Heterogeneity in Demands: a Panel Data Analysis," CAM Working Papers 2004-18, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Andrew E. Clark and Andrew J. Oswald, .
"Satisfaction and Comparison Income,"
Economics Discussion Papers
419, University of Essex, Department of Economics.
- Oswald, Andrew J, 1997.
"Happiness and Economic Performance,"
Royal Economic Society, vol. 107(445), pages 1815-31, November.
- Oswald, Andrew, 1997. "Happiness and Economic Performance," The Warwick Economics Research Paper Series (TWERPS) 478, University of Warwick, Department of Economics.
- Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
- Wendner, Ronald & Goulder, Lawrence H., 2008. "Status effects, public goods provision, and excess burden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1968-1985, October.
- Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2001.
"How Much Do We Care About Absolute Versus Relative Income and Consumption?,"
Working Papers in Economics
63, University of Gothenburg, Department of Economics.
- 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.
- Collado, M. Dolores, .
"Separability and aggregate shocks in the life-cycle model of consumption: evidence from Spain,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/3950, Universidad Carlos III de Madrid.
- Collado, M Dolores, 1998. "Separability and Aggregate Shocks in the Life-Cycle Model of Consumption: Evidence from Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 227-47, May.
- Jürgen Maurer & André Meier, 2008.
"Smooth it Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice,"
Royal Economic Society, vol. 118(527), pages 454-476, 03.
- Jürgen Maurer & André Meier, 2008. "Smooth it Like the “Joneses?” Estimating Peer-Group Effects in Intertemporal Consumption Choice," MEA discussion paper series 08167, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2007.
"Aspirations, Habit Formation, and Bequest Motive,"
Royal Economic Society, vol. 117(520), pages 813-836, 04.
- Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Aspirations, Habit Formation, and Bequest Motive," UFAE and IAE Working Papers 641.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Jaime Alonso-Carrera & Jordi Caballe & Xavier Raurich, 2004. "Aspirations, Habit Formation, and Bequest Motive," Working Papers 136, Barcelona Graduate School of Economics.
- Kerwin Kofi Charles & Erik Hurst & Nikolai Roussanov, 2009.
"Conspicuous Consumption and Race,"
The Quarterly Journal of Economics,
MIT Press, vol. 124(2), pages 425-467, May.
- Ng, Yew-Kwang & Wang, Jianguo, 1993. "Relative income, aspiration, environmental quality, individual and political myopia : Why may the rat-race for material growth be welfare-reducing?," Mathematical Social Sciences, Elsevier, vol. 26(1), pages 3-23, July.
- Francisco Alvarez-Cuadrado & Ngo Van Long, 2009.
"Envy And Inequality,"
Departmental Working Papers
2009-03, McGill University, Department of Economics.
- Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "Relative consumption and renewable resource extraction under alternative property-rights regimes," Resource and Energy Economics, Elsevier, vol. 33(4), pages 1028-1053.
- Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
- B. Verhelst & D. Van Den Poel, 2012. "Deep Habits in Consumption: A Spatial Panel Analysis Using Scanner Data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/823, Ghent University, Faculty of Economics and Business Administration.
- Paul Eckerstorfer & Ronald Wendner, 2013.
"Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation,"
Economics working papers
2013-01, Department of Economics, Johannes Kepler University Linz, Austria.
- Eckerstorfer, Paul & Wendner, Ronald, 2013. "Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation," Journal of Public Economics, Elsevier, vol. 106(C), pages 42-56.
- Eckerstorfer, Paul & Wendner, Ronald, 2013. "Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation," MPRA Paper 45521, University Library of Munich, Germany.
- Paul Eckerstorfer & Ronald Wendner, 2013. "Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation," Graz Economics Papers 2013-01, University of Graz, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a).
If references are entirely missing, you can add them using this form.