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Habits and Heterogeneity in Demands: a Panel Data Analysis

Author

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  • Martin Browning

    (Institute of Economics, University of Copenhagen)

  • M. Dolores Collado

    (Alicante University, Spain)

Abstract

We examine demand behaviour for intertemporal dependencies, using Spanish panel data. We present evidence that there is both state dependence and correlated heterogeneity in demand behaviour. Our specific findings are that food outside the home, alcohol and tobacco are habit forming whereas clothing and small durables exhibit durability. We conclude that demand analyses using cross-section data that ignore these effects may be seriously biased. On the other hand, the degree of intertemporal dependence is not sufficiently strong to make composite ‘consumption’ significantly habit forming, as has been suggested in some recent analyses.

Suggested Citation

  • Martin Browning & M. Dolores Collado, 2004. "Habits and Heterogeneity in Demands: a Panel Data Analysis," CAM Working Papers 2004-18, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    • Handle: RePEc:kud:kuieca:2004_18
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    References listed on IDEAS

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    1. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June.
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    More about this item

    Keywords

    habit; demand;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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