Inertia, Interaction and Clustering in Demand

Babutsidze, Zakaria and Cowan, Robin (2009). Inertia, Interaction and Clustering in Demand. UNU-MERIT.

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UNU-MERIT Working Papers

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  • Author Babutsidze, Zakaria
    Cowan, Robin
    Title Inertia, Interaction and Clustering in Demand
    Publication Date 2009
    Publisher UNU-MERIT
    Abstract We present a discrete choice model of consumption that incorporates two empirically validated aspects of consumer behaviour: inertia in consumption and interaction among consumers. We specify the interaction structure as a regular lattice with consumers interacting only with immediate neighbours. We investigate the equilibrium behaviour of the resulting system and show analytically that for a large range of initial conditions clustering in economic behaviour emerges and persists indefinitely. Short-run behaviour of the model is investigated numerically. This exercise indicates that equilibrium properties of the system can predict a short-run behaviour of the model quite accurately.
    Keyword Clustering
    Interaction
    Habits
    Consumer choice
    JEL D11
    D83
    C65
    Copyright Holder UNU-MERIT
    Copyright Year 2009
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    Created: Wed, 11 Dec 2013, 16:36:22 JST