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The marginal utility of money: A modern Marshallian approach to consumer choice

  • József Sákovics

    ()

  • Daniel Friedman (University of California at Santa Cruz)

We reformulate neoclassical consumer choice by focusing on lamda, the marginal utility of money. As the opportunity cost of current expenditure, lamda is approximated by the slope of the indirect utility function of the continuation. We argue that lamda can largely supplant the role of an arbitrary budget constraint in partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive approach to consumer choice.

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File URL: http://www.econ.ed.ac.uk/papers/ConsumerChoice_Sakovics.pdf
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 209.

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Length: 31
Date of creation: 02 Aug 2011
Date of revision:
Handle: RePEc:edn:esedps:209
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  1. József Sákovics, 2011. "Reference distorted prices," Quantitative Marketing and Economics, Springer, vol. 9(4), pages 339-363, December.
  2. David Genesove & Christopher Mayer, . "Loss Aversion and Seller Behavior: Evidence from the Housing Market," Zell/Lurie Center Working Papers 323, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  3. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  4. George J. Stigler, 1950. "The Development of Utility Theory. II," Journal of Political Economy, University of Chicago Press, vol. 58, pages 373.
  5. Gerard Debreu, 1959. "Topological Methods in Cardinal Utility Theory," Cowles Foundation Discussion Papers 76, Cowles Foundation for Research in Economics, Yale University.
  6. Vives, Xavier, 1987. "Small Income Effects: A Marshallian Theory of Consumer Surplus and Downward Sloping Demand," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 87-103, January.
  7. Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-97, December.
  8. Hauser, John R & Urban, Glen L, 1986. " The Value Priority Hypotheses for Consumer Budget Plans," Journal of Consumer Research, University of Chicago Press, vol. 12(4), pages 446-62, March.
  9. Cox, James C, 1975. "Portfolio Choice and Saving in an Optimal Consumption-Leisure Plan," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 105-16, January.
  10. Deaton, Angus S, 1977. "Involuntary Saving through Unanticipated Inflation," American Economic Review, American Economic Association, vol. 67(5), pages 899-910, December.
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