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Consumption Patterns over Pay Periods

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  • Kelly, Clare

    (University College Dublin)

  • Gauthier Lanot

    (Keele University)

Abstract

This paper establishes a theoretical framework to characterise the optimal behaviour of individuals who receive income periodically but make consumption decisions at frequent points during that period, when there is uncertainty with respect to prices and imperfect credit markets. We simulate the numerical solution to this model and find that optimal consumption is u-shaped over the pay period. We apply the model to weekly expenditure data from the FES to estimate the coefficient of relative risk aversion (preliminary point estimates are around 6) and the extent of measurement error in the data (which accounts for approximately 50% of the variance in the data).

Suggested Citation

  • Kelly, Clare & Gauthier Lanot, 2002. "Consumption Patterns over Pay Periods," Royal Economic Society Annual Conference 2002 112, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:112
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    Cited by:

    1. Emre Ozdenoren & Stephen W. Salant & Dan Silverman, 2012. "Willpower And The Optimal Control Of Visceral Urges," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 342-368, April.
    2. Clare Kelly & Gauthier Lanot, 2003. "Analytical Results for a Model of Periodic Consumption," Keele Economics Research Papers KERP 2003/01, Centre for Economic Research, Keele University.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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