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Habits And Heterogeneity In Demands: A Panel Data Analysis

Author

Listed:
  • M. Dolores Collado

    () (Universidad de Alicante)

  • Martín Browning

    (University of Copenhagen)

Abstract

We examine demand behaviour for intertemporal dependencies, using Spanishpanel data. We present evidence that there is both state dependence and correlatedheterogeneity in demand behaviour. Our specific findings are that food outside thehome, alcohol and tobacco are habit forming whereas clothing and small durablesexhibit durability. We conclude that demand analyses using cross-section data thatignore these effects may be seriously biased. On the other hand, the degree ofintertemporal dependence is not sufficiently strong to make composite `consumption'significantly habit forming, as has been suggested in some recent analyses.

Suggested Citation

  • M. Dolores Collado & Martín Browning, 2006. "Habits And Heterogeneity In Demands: A Panel Data Analysis," Working Papers. Serie AD 2006-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2006-25
    as

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    References listed on IDEAS

    as
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    3. Spinnewyn, Frans, 1981. "Rational habit formation," European Economic Review, Elsevier, vol. 15(1), pages 91-109.
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    5. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, vol. 170(2), pages 256-280.
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    7. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
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    9. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
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    11. Browning, Martin, 1991. "A Simple Nonadditive Preference Structure for Models of Household Behavior over Time," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 607-637, June.
    12. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
    13. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    More about this item

    Keywords

    Habits; State dependence; correlated heterogeneity.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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