rational demand and expenditures patterns under habit formation abstract this paper proposes a model in which habit formation is present in a relatively general but tractable way the consumer s problem is transformed into a sequence of two period fisherian problems by introducing a reduced utility function to ensure full dynamic rationality of the consumer by making preferences dependent on past real expenditure levels rather than past consumption bundles it is possible to characterize the long run behavior of the consumer stability analysis is performed the cases of immediate habit formation and delayed habit formation are discussed

habit formation interdependent preferences and demographic effects in the almost ideal demand system the authors model myopic habit formation interdependence of preferences among consumers and demographic effects as taste shifters in a micro consumer demand model of the almost ideal demand variety the model is estimated for dutch micro data the authors investigate the dynamic properties of the model and find that it behaves very differently from models without interdependence of preferences the implications for micro macro modeling are discussed copyright 1991 by royal economic society

habit formation in consumer preferences evidence from panel data 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 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

which dreams come true endogeneity industry structure and forecasting accuracy forecasts are plentiful accurate long range forecasts are rare but some forecasts are more accurate than others are and a few are very accurate in this paper we first explore the case of moore s law a forecast that has proven quite accurate for almost 40 years we illustrate how expectations that moore s law will continue to be accurate actually make it accurate based on the insights of this case we hypothesize that two factors facilitate such self fulfilling forecasts and so make accuracy more possible we test these hypotheses on a set of 3142 forecasts about us manufacturing industries during the 1970s we find that high industry concentration and high control over the predicted variable tend to increase the accuracy of forecasts copyright 2003 oxford university press

hypothetical intertemporal consumption choices the paper extends and replicates part of the analysis by barsky juster kimball and shapiro 1997 which exploits hypothetical choices among different consumption streams to infer intertemporal substitution elasticities and rates of time preference we use a new and much larger dataset than barsky et al furthermore we estimate structural models of intertemporal choice while parameterizing the parameters of interest as a function of relevant individual characteristics we also consider lobehaviorallc extensions like habit formation models with habit formation appear to be superior to models with intertemporally additive preferences

a test of the habit formation hypothesis using household data numerous studies have confirmed the importance of habit formation as represented by a lagged dependent variable in demand analysis although all work to date has been based on aggregate time series data this study uses household level bls interview panel data to test the habit hypothesis an interrelated demand system for seventeen goods is estimated from cross section data and compared with a similar system based on time series data the results show that the habit component is significantly different between the two data sets and much smaller in the cross section data habit effects while not as large in cross section data as time series are still highly significant several explanations are offered concerning why the two sets of estimates differ copyright 1991 by mit press

earnings test non actuarial adjustments and flexible retirement abstract in response to the challenges of increasing longevity many countries have introduced flexibility reforms for their public pension systems a key measure of these reforms is the abolishment of earnings tests it is claimed that these reforms increase labor supply and therefore the financial sustainability of pension systems we build a simulation model to show that abolishing an earnings test may indeed create more labor supply but simultaneously reduce the average claiming age when adjustments remain less than actuarial as is the case in most european pension systems flexibility reforms may therefore worsen rather than improve the sustainability of public pension systems

intertemporal substitution and λ constant comparative statics abstract this paper characterizes intertemporal substitution along intertemporal consumption profiles a precise definition of the intertemporal elasticity of substitution is presented and compared to intertemporal analogs of the hicks allen and direct elasticities of substitution and the marginal utility of wealth or constant own price elasticity of demand in a model with perfect foresight i establish that constant comparative statics accurately characterizes intertemporal substitution if and only if lifetime utility is intertemporally additive i also demonstrate the usefulness of constant comparative statics in characterizing intertemporal substitution in models without time separability or perfect foresight

habits and heterogeneity in demands a panel data analysis 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

habit formation and demand for sugar sweetened beverages using scanner data we estimated demand for nine nonalcoholic beverages under habit formation we found strong evidence for habit formation although demand for sugar sweetened beverages by low income households is less elastic to own price changes compared with high income households there is evidence that high income households consider beverages to be more substitutable than low income households do a half cent per ounce tax on store purchased sugar sweetened beverages will result in a moderate reduction in consumption of sugar sweetened beverages for both income strata because of habit formation long run national tax revenue from a sugar sweetened beverage tax is about 15 to 20 lower than short run revenue

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

hierarchical choice in economics abstract the paper examines the relevance for economic issues of choice which is not characterized by unlimited substitutability after showing that hierarchical choice is common in other social sciences like psychology the paper proceeds with an examination of such choice and of its different categories subsequently the implications for hierarchical choice for specific economic issues are analysed in particular there is discussion and literature review of demand theory engel curves the theory of the firm and social choice theory finally some suggestions for the application to other economic problems are considered

averages of forecasts some empirical results an alternative to using a single forecasting method is to average the forecasts obtained from several methods in this paper we investigate empirically the impact of the number and choice of forecasting methods on the accuracy of simple averages it is concluded that the forecasting accuracy improves and that the variability of accuracy among different combinations decreases as the number of methods in the average increases thus combining forecasts seems to be a reasonable practical alternative when as is often the case a true model of the data generating process or a single best forecasting method cannot be or is not for whatever reasons identified

household demand for energy in the uk abstract many demand systems have recently been estimated which treat consumer expenditure on energy as one of a small number of similar expenditure groups this study formulates a simple demand system in which expenditures on individual fuels are also examined and into which the role of the stock of energy using appliances is integrated it goes on to adopt a particular functional form for consumer preferences and then fits the resultant econometric system to quarterly british data

dangerous flexibility retirement reforms reconsidered flexible retirement is supposed to increase labor supply of older workers without touching the third rail of pension politics the highly unpopular increase of the retirement age while this may have intuitive appeal this paper shows that it might be wishful thinking economic theory tells us that flexible retirement policies can have a zero or positive effect on labor force participation while the effect on hours worked can be positive or negative depending on the distribution of leisure preferences thus the overall effect is ex ante unclear empirical results from nine oecd countries show that the effect on labor force participation is ex post small and positive while the effect on hours worked is negative overall there is no evidence of the desired positive effect on total labor supply rather we see evidence of a dangerous decline in total labor supply we conclude that the flexibility reforms enacted so far have failed to increase old age labor supply and delineate several alternative options to achieve this aim

the labour supply effect of the abolition of the earnings rule for older workers in the united kingdom high effective tax rates on work at and around state pension age deter participation an example is the earnings test operating in several oecd countries the united states abolished its test for the 65 age group in 2000 the united kingdom offers a natural experiment of this reform as it abolished its test known as the earnings rule in 1989 we examine the effect of this change taking account of the opportunity to defer pension rights abolition of the rule raised working hours of older male workers by around 4 hours a week with a lesser impact on women s behaviour

female labor supply why is the united states falling behind abstract in 1990 the us had the sixth highest female labor participation rate among 22 oecd countries by 2010 its rank had fallen to seventeenth we find that the expansion of family friendly p

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

always the third rail pension income and policy preferences in european democracies social transfer programs are thought to generate beneficiary groups who will act politically to defend their programs from retrenchment but little empirical research has been conducted to either verify or disconfirm the micro foundations of this hypothesis which lies at the heart of the new social risks thesis as well as many economic analyses of welfare state politics this article tests empirically whether benefiting from public pensions leads individuals to greater support of the pension system status quo net of other factors it uses cross data set imputation to combine cross nationally comparable individual level data on income from public pensions with political attitudes toward proposed pension reforms the hypothesis that public pension systems create policy feedbacks of self interested beneficiaries supporting further pension spending is not supported in any of 11 european countries in either 1992 or 2001

rational habits in gasoline demand abstract the dynamics of demand for energy goods such as gasoline are complicated by investment decisions and behavioral habits both types of complication can be captured by a habits model in which past consumption enters into an agent s current utility function if the agent is forward looking or rational then habits imply his consumption of the habit forming good will be sensitive to his expectation of future market conditions in particular future prices this sensitivity implies in turn that traditional measures of price elasticity will underproject consumers responsiveness to policy interventions this paper examines the implications of rational habits on gasoline demand using a simple model encompassing myopic and rational habits i demonstrate that an agent with rational habits will respond to anticipated future price changes and react more strongly to permanent than to temporary price changes with this distinction increasing in the strength of the habit i then estimate several habits models using panel data on u s states for the years 1989 through 2008 my preferred specification yields evidence of rational habits and moreover i find consumers to be twice as responsive to tax driven price changes as to market driven price changes taxes and other policies that operate through the gasoline price are a more powerful policy instrument than traditional price elasticity would lead us to believe

towards a more general approach to testing the time additivity hypothesis a new procedure is proposed for re examining the assumption of additivity of preferences over time which although untenable is usually maintained in intertemporal analyses of consumption and labour supply the method is an extension of a famous work by browning however it is more general in permitting the estimation of intertemporal demand systems which are explicit in an unobservable variable price of utility but may lack a closed form representation in terms of observable variables such as prices and total outlay it also makes extensive use of duality theory to solve the endogeneity problem encountered in browning s study applying this method with an appropriate estimator to the australian aggregate data it is found that the time additivity hypothesis is decisively rejected which is consistent with browning s conclusion

scaling heuristics shape technology should economic theory take notice in some economics textbooks production theory is developed axiomatically the divisibility axiom presents a bold affront to realism it distorts the static theory and forecloses some potential encounters with technological change the article reviews propositions about geometrical scaling that have long been recognized as relevant to the realities studied in many fields including industrial organization economics the article concludes by sketching a program of reform for production theory that would make connections to dosi s concepts of technological paradigms and trajectories dosi 1982

habit formation and intertemporal substitution in individual food consumption individual food consumption data are used to examine three issues first is food consumption linked intertemporally at the individual level second does the association between current and past consumption reflect habit or heterogeneity third what do the estimates imply about the intertemporal elasticity of substitution the authors find that habit matters that controlling for heterogeneity reduces estimated habit effects and that the product of the estimated intertemporal elasticity of substitution and the risk aversion parameter is less than one these results all lead to rejection of time separable specifications of intertemporal consumption behavior copyright 1996 by mit press

habit seasonality and time aggregation in consumer behaviour habitual behaviour in consumer demand analysis is generally portrayed via some form of a lagged dependent variable model the purpose of this paper is to explore the implications for habit behaviour of time aggregation this is done by specifying both habit and seasonal components in demand relations the results indicate that much of what has traditionally been identified as habitual behaviour is in fact seasonal effects

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

a general framework for the analysis of preference variation the traditional approach to changing preferences introduced a vector of shift variables in the utility function but was confronted with the problem of specifying the effects of changes in these variables on the marginal utilities the new theory of demand introducing intervening variables characteristics basic commodities offers an attractive and psychologically richer way of describing preferences changes it is however difficult to operationalise and the use of shadow prices in a two stage decision procedure raises some difficult theoretical problems in this paper we try to integrate the two approaches we start from the traditional framework but use the specification of the household technology to specify changes in the marginal utilities of the market goods in this way we get a very general model from which most existing definitions of preference changes can be derived as special cases this is illustrated with an analysis of habit formation the effect of quality changes in a lancaster setting and the content of advertising messages use of the model makes it possible to gain some new insights in each of these cases

a structural retirement model the life cycle model analyzed here constrains most work on the main job to be full time partial retirement entails a wage reduction and frequently a job change maximum likelihood estimates of utility function parameters are designed to incorporate information on the age of leaving full time work and the age of full retirement the model closely tracks retirement behavior including peaks in retirement activity at 62 and 65 the paper explores the relation of these peaks to nonlinearities in the budget constraint created by various retirement programs policy analyses based on this and on earlier models with simpler structures are compared the retirement choice is one of the more prominent manifestations of life cycle behavior the decision is the result of an interplay between an individual s preferences and a set of incentives which change in complicated ways as the individual progresses through his or her late 50 s and 60 s the purpose of this study is to formulate and estimate a structural model which incorporates in a fundamental way this interplay between lifetime preferences and incentives and to illustrate how such a model may be used to investigate retirement behavior a structural model of this type is essential for analyzing potential policy changes which can be expected to affect incentives in varying ways over a number of years in the life cycle the current study incorporates two structural features which have frequently been omitted from previous studies first the model requires that an individual who wishes to reduce work effort below full time must accept a reduced hourly wage rate in order to do so this reflects empirical evidence from micro data sets which indicates that around one third of older individuals engage in part time work at one time or another and that regardless of whether or not these older workers change jobs to obtain part time work they usually take wage cuts as compared to their previous full time work 2 the fact that an individual is willing to accept a lower wage rate in return for the opportunity to work fewer than full time hours contains important information about the preferences of the