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HABIT FORMATION IN CONSUMPTION: A Case Study of Rural India

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  • Puja Guha

    (Delhi School of Economics)

Abstract

Dependence of present consumption over the past levels’ was first proposed by Polak (1970). Since then many extensive studies have been done to test the presence of habit-forming effects in food and non-food commodities in the context of many different countries. But no such formal analysis has been done with Indian data. This paper examines the habit-forming effects in the context of rural India – considering rural parts of 4 Indian States Punjab, Gujarat, West Bengal and Tamil Nadu. The demand system used is the flexible AIDS model incorporating demography. It is found that habit effects are significant for all states considered.

Suggested Citation

  • Puja Guha, 2004. "HABIT FORMATION IN CONSUMPTION: A Case Study of Rural India," Econometrics 0412012, EconWPA.
  • Handle: RePEc:wpa:wuwpem:0412012
    Note: Type of Document - doc; pages: 24
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    References listed on IDEAS

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    1. Kapteyn, Arie, et al, 1997. "Interdependent Preferences: An Econometric Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 665-686, Nov.-Dec..
    2. J. V. Meenakshi & Ranjan Ray, 1999. "Regional differences in India's food expenditure pattern: a complete demand systems approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(1), pages 47-74.
    3. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-763, Part I Ju.
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    More about this item

    Keywords

    Myopic Habit Formation; Linear Expenditure System; Almost Ideal Demand System; Likelihood Ratio Test;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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