Money Flexibility And Optimal Consumption-Leisure Choice Under Price Dispersion
The synthesis of G.Sigler's rule of the optimal search with the classical individual labor supply model can incorporate the satisficing decision procedure in the neoclassical framework. Many psychological anomalies and puzzles like the paradox of little pre-purchase search for big-ticket items and the effect of sunk costs sensitivity get the purely economic rationale. This synthesis also enlarges the understanding of the phenomenon of money flexibility under price dispersion. The specific constraints of the search model establish the correspondence between elasticity of the marginal utility of labor income with regard to price dispersion, wage rates, and the propensity to search. The money flexibility under price dispersion discovers specific features of Veblen effect. The marginal utility of labor income becomes negative, when the smart shopping of luxuries results in price reductions, which are greater than the wage rate. The marginal utility of luxuries also becomes negative. And the total consumption-leisure utility is increasing only due to the increase in leisure time. The paper argues that the same mechanism underlies the phenomenon of money illusion due to the relatively excess money balances.
Volume (Year): IV (2013)
Issue (Month): 1 (July)
|Contact details of provider:|| Web page: http://www.asers.eu/journals/tpref.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Malakhov, Sergey, 2012.
"Satisficing decision procedure and optimal consumption-leisure choice,"
38964, University Library of Munich, Germany.
- Sergey Malakhov, 2014. "Satisficing Decision Procedure and Optimal Consumption-Leisure Choice," International Journal of Social Science Research, Macrothink Institute, vol. 2(2), pages 138-151, September.
- Mark Aguiar & Erik Hurst, 2007. "Measuring Trends in Leisure: The Allocation of Time Over Five Decades," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 969-1006.
- Peter Diamond, 1985.
"Consumer Differences and Prices in a Search Model,"
404, Massachusetts Institute of Technology (MIT), Department of Economics.
- H. Leibenstein, 1950. "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 64(2), pages 183-207.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Malakhov, Sergey, 2012. "Veblen effect, search for status goods, and negative utility of conspicuous leisure," MPRA Paper 40809, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:srs:tpref1:4:v:4:y:2013:i:1:p:77-88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Ungureanu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.