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Production and endogenous preferences

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  • Dergunov, Ilya

Abstract

This paper proposes a two-sector production model augmented with the endogenous preference evolution mechanism. The preference evolution reflects the popularity of two sectors among investors and captures the idea that preferences for the two goods move endogenously over time. The interaction of preference evolution and market-clearing mechanism generates endogenous movements in Tobin’s Q, risk premia and wealth shares different to the standard production economy of Eberly and Wang (2011). The model also implies that wealth fluctuates across sectors due to the shifts in preferences and subsequently because of expected returns and Sharpe ratios. In the empirical tests, I calibrate the baseline model to the US data sample over 1975–2019 and verify that model predictions are supported in the data.

Suggested Citation

  • Dergunov, Ilya, 2026. "Production and endogenous preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:dyncon:v:188:y:2026:i:c:s0165188926000928
    DOI: 10.1016/j.jedc.2026.105346
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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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