Consumption Theory with Reference Dependent Utility
This paper presents a closed form consumption function for an individual when he derives utility from both his current and previous consumption and from the consumption of his relevant others. I show that the traditional definition of an individual's marginal propensity to consume (MPC) is too narrow. With existing knowledge we would call for a broader definition of the MPC that I coin as the individual's total MPC, which also takes into account the consumption change of the relevant others, and this affects that total MPC is smaller than the traditional MPC.
|Date of creation:||22 Sep 2006|
|Date of revision:|
|Publication status:||Published in Journal of Socio-Economics, 2009, pages 415-420.|
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