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 an 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 fourth of the weight placed in the consumption of the reference group and more than one third of the weight placed on the agent's past consumption.
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Bibliographic InfoPaper 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 054.
Date of creation: 2012
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Consumption Externalities; Habit Formation; Panel Data;
Other versions of this item:
- Francisco Alvarez-Cuadrado & Jose Maria Casado & Jose Maria Labeaga & Dhanoos Sutthiphisal, 2012. "Envy and habits: panel data estimates of interdependent preferences," Banco de Espaï¿½a Working Papers 1213, Banco de Espa�a.
- 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
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