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A nonparametric analysis of habits models

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  • Ian Crawford

    (Institute for Fiscal Studies and Nuffield College, Oxford)

Abstract

This paper presents a nonparametric analysis of the canonical habits model. The approach is based on the combinatorial/revealed preference framework of Samuelson (1948), Houthakker (1950), Afriat (1967) and Varian (1982) and the extenstion and application of these ideas to intertemporal models in Browning (1989). It provides a simple finitely computable test of the model which does not require a parameterisation of the underlying (hypothesised) preferences.It also yields set identification of important features of the canonical habits model including the consumer's rate of time preference and the welfare effects of habit-formation. The ideas presented are illustrated using Spanish panel data.

Suggested Citation

  • Ian Crawford, 2007. "A nonparametric analysis of habits models," CeMMAP working papers CWP30/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:30/07
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    File URL: http://cemmap.ifs.org.uk/wps/cwp3007.pdf
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    References listed on IDEAS

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