Article2000

Habit Formation in Consumer Preferences: Evidence from Panel Data

465 citations0/0 files storedAmerican Economic Review

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Economics of Agriculture and Food Markets Financial Literacy, Pension, Retirement Analysis Decision-Making and Behavioral Economics

Abstract

This paper tests for the presence of habit formation using household data. A simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time. When the condition is estimated with food consumption data from the Panel Study on Income Dynamics (PSID), the results yield no evidence of habit formation at the annual frequency. This finding is robust to a number of changes in the specification. It also holds for several proxies for nondurables and services consumption created by combining PSID variables with weights estimated from Consumer Expenditure Survey data. (JEL D12, D91, E21)

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References

1999By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior 1990Habit Formation: A Resolution of the Equity Premium Puzzle 1990Asset Prices under Habit Formation and Catching up with the Joneses 1989Consumption and Liquidity Constraints: An Empirical Investigation 1988Intertemporal Substitution in Consumption 1981Intertemporal Substitution in Consumption 1991A Simple Test of Consumption Insurance 1991Poverty and the Rate of Time Preference: Evidence from Panel Data

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