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The First of the Month Effect: Consumer Behavior and Store Responses

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  • Justine S. Hastings
  • Ebonya L. Washington

Abstract

Previous research has used survey and diary data to carefully document that Food Stamp recipients decrease their expenditures and consumption of food throughout the benefit month, the beginning of which is defined by the date on which benefits are distributed. The reliance on survey and diary data has meant that researchers could not test two rational hypotheses for why food consumption cycles. Using detailed grocery store scanner data we ask 1) whether cycling is due to a desire for variation in foods consumed that leads to substitution across product quality within the month and 2) whether cycling is driven by countercyclical pricing by grocery retailers. We find support for neither of these hypotheses. We find that the decrease in food expenditures is largely driven by reductions in food quantity, not quality, and that prices for foods purchased by benefit households vary pro-cyclically with demand implying that benefit households could save money by delaying their food purchases until later in the month. The price effects are small relative to demand changes and relative to impacts found for other subsidy programs such as EITC, suggesting that most of the benefits accrue to the intended recipients particularly in product categories and stores where benefit recipients represent a small fraction of overall demand. We conclude by concurring with previous literature that food cycling behavior is most likely due to short-run impatience.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14578.

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Date of creation: Dec 2008
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Publication status: published as Justine Hastings & Ebonya Washington, 2010. "The First of the Month Effect: Consumer Behavior and Store Responses," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 142-62, May.
Handle: RePEc:nbr:nberwo:14578

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  1. Dobkin, Carlos & Puller, Steven L., 2007. "The effects of government transfers on monthly cycles in drug abuse, hospitalization and mortality," Journal of Public Economics, Elsevier, Elsevier, vol. 91(11-12), pages 2137-2157, December.
  2. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
  3. Gicheva, Dora & Hastings, Justine & Villas-Boas, Sofia B, 2008. "Revisiting the Income Effect: Gasoline Prices and Grocery Purchases," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt7087m1p6, Department of Agricultural & Resource Economics, UC Berkeley.
  4. Jesse M. Shapiro, 2003. "Is there a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle," Microeconomics, EconWPA 0304005, EconWPA, revised 21 Apr 2003.
  5. Joseph Altonji & Ernesto Villanueva, 2003. "The marginal propensity to spend on adult children," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 667, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Parke E. Wilde & Christine K. Ranney, 2000. "The Monthly Food Stamp Cycle: Shooping Frequency and Food Intake Decisions in an Endogenous Switching Regression Framework," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 82(1), pages 200-213.
  7. Greg M. Allenby & Peter E. Rossi, 1991. "Quality Perceptions and Asymmetric Switching Between Brands," Marketing Science, INFORMS, INFORMS, vol. 10(3), pages 185-204.
  8. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  9. MacDonald, James M, 2000. "Demand, Information, and Competition: Why Do Food Prices Fall at Seasonal Demand Peaks?," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 27-45, March.
  10. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(2), pages 321-52, May.
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Cited by:
  1. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.
  2. Dave, Dhaval M. & Kelly, Inas Rashad, 2012. "How does the business cycle affect eating habits?," Social Science & Medicine, Elsevier, Elsevier, vol. 74(2), pages 254-262.
  3. Damon, Amy L. & King, Robert P. & Leibtag, Ephraim, 2013. "First of the month effect: Does it apply across food retail channels?," Food Policy, Elsevier, Elsevier, vol. 41(C), pages 18-27.
  4. Matias Busso & Sebastian Galiani, 2014. "The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment," NBER Working Papers 20054, National Bureau of Economic Research, Inc.

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