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Tractable Consumer Choice

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Abstract

We derive a rational model of separable consumer choice which can also serve as a behavioral model. The central construct is lambda, the marginal utility of money, derived from the consumer's rest-of-life problem. We present a robust approximation of lambda, and show how to incorporate liquidity constraints, indivisibilities and adaptation to a changing environment. We find connections with numerous historical and recent constructs, both behavioral and neoclassical, and draw contrasts with standard partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive description

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 240.

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Length: 40
Date of creation: 03 Feb 2014
Date of revision:
Handle: RePEc:edn:esedps:240

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Keywords: distributed choice; moneysworth demand; value for money.;

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