Consumption Theory with Reference Dependent Utility
AbstractThis paper presents a closed form consumption function for an individual when he derives utility from both his current and previous consumption and from the consumption of his relevant others. I show that the traditional definition of an individual's marginal propensity to consume (MPC) is too narrow. With existing knowledge we would call for a broader definition of the MPC that I coin as the individual's total MPC, which also takes into account the consumption change of the relevant others, and this affects that total MPC is smaller than the traditional MPC.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 226.
Length: 16 pages
Date of creation: 22 Sep 2006
Date of revision:
Publication status: Published in Journal of Socio-Economics, 2009, pages 415-420.
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Consumption decision; consumption of relevant others; habit- formation behavior; marginal propensity to consume; excess smoothness;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-MAC-2006-09-30 (Macroeconomics)
- NEP-UPT-2006-09-30 (Utility Models & Prospect Theory)
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