Envy and habits: Panel data estimates of interdependent preferences

Casado, Jose Maria, Alvarez-Cuadrado, Francisco, Labeaga Azcona, José M. and Sutthiphisal, Dhanoos (2012). Envy and habits: Panel data estimates of interdependent preferences. UNU-MERIT.

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  • Sub-type Working paper
    Author Casado, Jose Maria
    Alvarez-Cuadrado, Francisco
    Labeaga Azcona, José M.
    Sutthiphisal, Dhanoos
    Title Envy and habits: Panel data estimates of interdependent preferences
    Publication Date 2012
    Place of Publication Maastricht, NL
    Publisher UNU-MERIT
    Pages 45
    Abstract We estimate the importance of preference interdependence from consumption choices. Our strategy follows the literature that tests the constraints imposed by optimality in the evolution of individual consumption. We derive an Euler equation from a preference specification that allows for non-separabilities across households and across time. The introduction of habits and envy places additional restrictions on the evolution of the optimal consumption path. We use a unique data set that follows a sample of 3,200 households for up to eight consecutive quarters to test these restrictions. Our estimates suggest that, if one defines utility over consumption services, a large fraction of these services is relative, with one fourth of the weight placed in the consumption of the reference group and more than one third of the weight placed on the agent's past consumption.
    Keyword Consumption externalities
    Habit formation
    Panel data
    JEL C23
    Copyright Holder UNU-MERIT
    Copyright Year 2012
    Copyright type All rights reserved
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    Created: Wed, 11 Dec 2013, 17:06:28 JST