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A Model of Consumption with Mental Accounting and Heterogeneous Agents

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  • Jaime Gimeno-Ribes

Abstract

This paper studies how mental accounting of income and wealth affects consumption decisions in a heterogeneous agent environment with incomplete markets, idiosyncratic risk, and asset illiquidity. Mental accounting is formalized using elements from reference-dependence with loss aversion, and it offers a unified explanation of empirical facts about marginal propensities to consume (MPC) and the household distribution that elude standard models: the existence of poor, wealthy, and liquid hand-to-mouth; a spender-saver MPC distribution; realistic levels of aggregate MPC, wealth, return spread, and consumption; differential MPCs from dividends and capital gains; non- Ricardian intertemporal MPCs; and asymmetric MPCs with respect to different attributes.

Suggested Citation

  • Jaime Gimeno-Ribes, 2026. "A Model of Consumption with Mental Accounting and Heterogeneous Agents," Working Papers 1550, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1550
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    References listed on IDEAS

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    1. Johannes Boehm & Etienne Fize & Xavier Jaravel, 2025. "Five Facts about MPCs: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 115(1), pages 1-42, January.
    2. James Graham & Robert A. McDowall, 2026. "Mental Accounts and Consumption Sensitivity across the Distribution of Liquid Assets," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(1), pages 1-33, January.
    3. Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2021. "MPC Heterogeneity and Household Balance Sheets," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 1-54, October.
    4. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    5. Lorenz Kueng, 2018. "Excess Sensitivity of High-Income Consumers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1693-1751.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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