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HABIT FORMATION IN CONSUMPTION: A Case Study of Rural India

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  • Puja Guha

    (Delhi School of Economics)

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    Abstract

    Dependence of present consumption over the past levels’ was first proposed by Polak (1970). Since then many extensive studies have been done to test the presence of habit-forming effects in food and non-food commodities in the context of many different countries. But no such formal analysis has been done with Indian data. This paper examines the habit-forming effects in the context of rural India – considering rural parts of 4 Indian States Punjab, Gujarat, West Bengal and Tamil Nadu. The demand system used is the flexible AIDS model incorporating demography. It is found that habit effects are significant for all states considered.

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    Bibliographic Info

    Paper provided by EconWPA in its series Econometrics with number 0412012.

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    Length: 24 pages
    Date of creation: 30 Dec 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpem:0412012

    Note: Type of Document - doc; pages: 24
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    Web page: http://128.118.178.162

    Related research

    Keywords: Myopic Habit Formation; Linear Expenditure System; Almost Ideal Demand System; Likelihood Ratio Test;

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    1. Kapteyn, A. & Van De Ger, S. & Van De Stadt, H. & Wansbeek, T., 1989. "Interdependent Preferences: An Econometric Analysis," Papers 8954, Tilburg - Center for Economic Research.
    2. Meenakshi, J.V. & Ray, R., 1996. "Regional Differences in India's Food Expenditure Pattern: A Complete Demand Systems Approach," Papers 1996-06, Tasmania - Department of Economics.
    3. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
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