HABIT FORMATION IN CONSUMPTION: A Case Study of Rural India
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.
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