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Habits and Time Preference

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  • Shi, Shouyong
  • Epstein, Larry G

Abstract

This paper proposes a utility function incorporating both habit formation and an endogenous rate of time preference in a manner consistent with the intuition of Irving Fisher regarding the influence of past consumption on impatience. It is shown that the ne w specification is tractable and generates new predictions in the cont ext of three model economies: (1) a closed economy with heterogeneous agents, (2) a small open economy with one traded good and one nontra ded good, and (3) a small open economy with a traded good and domestic money. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Shi, Shouyong & Epstein, Larry G, 1993. "Habits and Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 61-84, February.
  • Handle: RePEc:ier:iecrev:v:34:y:1993:i:1:p:61-84
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