Deep Habits in Consumption: A Spatial Panel Analysis Using Scanner Data
AbstractUsing scanner data from a large European retailer, this paper empirically assesses deep habit formation in consumption. Deep habit formation constitutes a possible source of price stickiness and helps to mimic procyclical labour and real wage dynamics that are present in macro data. To gauge the existence and the extent of deep habits in consumption, we estimate a dynamic timespace simultaneous model for consumption expenditure at different levels of product aggregation. This spatial panel model enables us to test for both internal and external deep habit formation at the same time. The former captures inertia or persistence in consumption, and is included in the empirical specification as a time lag. The latter captures preference interdependence across households and is captured by a spatial lag. Our results show mixed evidence with respect to internal habit formation, whereas the external habit effect is almost always positive and significant.
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Bibliographic InfoPaper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 12/823.
Length: 32 pages
Date of creation: Dec 2012
Date of revision:
Deep habits; Preference interdependence; Spatial panel;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-GEO-2013-02-03 (Economic Geography)
- NEP-URE-2013-02-03 (Urban & Real Estate Economics)
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