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Habit Formation, Information Exchange and the Social Geography of Demand

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Author Info
Babutsidze, Zakaria () (UNU-MERIT)
Cowan, Robin () (UNU-MERIT, Maastricht University, BETA, University of Strasbourg)

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Abstract

This paper is concerned with clustering in demand. We present a discrete choice model of consumption that incorporates habit formation and information exchange among consumers in fixed social networks. We provide an analytical solution to a special case of the model by using technical tools from chemistry and biology. We demonstrate the validity of these results for the general case numerically. It is shown that clustering in demand is a solution to the complex system we are analyzing, and that clustering pattern can be short-term or long-lasting depending on the characteristics of the society.

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Publisher Info
Paper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 047.

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Date of creation: 2008
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Handle: RePEc:dgr:unumer:2008047

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Web page: http://www.merit.unu.edu

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Related research
Keywords: demand; clustering; information; partial differential equations;

Find related papers by JEL classification:
C65 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Miscellaneous Mathematical Tools
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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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.:
  1. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
  2. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
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  3. Babutsidze, Zakaria, 2007. "How Do Consumers Make Choices? A Summary of Evidence from Marketing and Psychology," UNU-MERIT Working Paper Series 005, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  5. Daniel Birke & G. Swann, 2006. "Network effects and the choice of mobile phone operator," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 65-84, April. [Downloadable!] (restricted)
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