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The 24/7 Society and Multiple Habits

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Author Info
Ali Choudhary (University of Surrey)
Paul Levine (University of Surrey)

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Abstract

We examine a model where households develop external habits by following norms and therefore have multiple habits in both consumption and labour supply. In doing so, they contribute to habit formation and hence pose an externality effect on others. Our findings are: first, that consumption and work habit (‘work ethic’) drive us towards a 24/7 society; both forms of habit increase the labour supply of households. Second, the two externalities involved in external habit work in opposite directions. For consumption, external habit is a negative externality as it reduces the utility of others in the economy. By contrast work ethic reduces the disutility and is therefore a positive externality. Third, as a result of our second finding, multiple habits can involve both a consumption tax and subsidy to correct for these externalities. Fourth, with plausible parameter values, the welfare consequences of multiple habits are far greater where there are long-run inefficiencies compared with only transitional inefficiency.

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Publisher Info
Paper provided by Department of Economics, University of Surrey in its series Department of Economics Discussion Papers with number 0506.

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Length: 32 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:sur:surrec:0506

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Related research
Keywords: Catching-up with the Joneses; Work Ethic; Savings; Output Inefficiency and Taxation;

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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