A Habit Forming Optimal Growth Model

Boyer, Marcel

doi:10.2307/2526327

Cited by 65 publications

(47 citation statements)

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“…In particular, psychological research into happiness, see, e.g., Easterlin (1974), Frank (1997 and Kahneman and Tversky (2000), provide evidence that utility is reference-based (both internally through habits and externally through comparison). Theoretical approaches are, for instance, Ryder and Heal (1973) and Boyer (1978) allowing for habit formation, Laibson (1997) and Barro (1999) studying hyperbolic discounting, Koopmans (1960), Uzawa (1968) and, more recently, Mausumi (2003) dealing with recursive preferences and marginal impatience, Shi and Epstein (1993) incorporating recursive preferences and habit formation, and De la Croix and Michel (1999) investigating optimal growth under hereditary tastes. Closely related to our approach are the papers by Carroll et al (2000) and Alvarez-Cuadrado et al (2004) who study the implications of habit formation or 'Keeping up with the Joneses' in a growth context; though none of these papers explores the prospect utility point of view in an economic growth context.…”

Section: Introductionmentioning

confidence: 99%

Consumption paths under prospect utility in an optimal growth model

Foellmi

Rosenblatt-Wisch

Sc̣henk-Hoppé

2011

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper studies the Cass-Koopmans-Ramsey model of optimal economic growth in the presence of loss aversion and habit formation. The representative agent's preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution (CIES) case and Kahneman and Tversky's prospect utility. We find that the transitional dynamics of optimal consumption paths differ distinctly from the standard model, in particular consumption smoothing is more pronounced. We also show that prospect utility can cause the economy to remain in a steady state with low consumption and low capital. Terms of use: Documents in EconStor mayJEL-Classification: E21; O41.

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Section: Introductionmentioning

confidence: 99%

Consumption paths under prospect utility in an optimal growth model

Foellmi

Rosenblatt-Wisch

Sc̣henk-Hoppé

2011

Journal of Economic Dynamics and Control

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“…In particular, following Boyer (1978Boyer ( , 1983, we consider a model with two goods and current period utility in period t given 3 by a concave utility function (1) U(Y, C, Cr1, e)…”

Section: The Basic Modelmentioning

confidence: 99%

“…The Becker-Murphy model follows Stigler and Becker (1977), lannaccone (1986), Ryder and Heal (1973), Boyer (1978Boyer ( , 1983, and Spinnewyn (1981) by considering the interaction of past and current consumption in a rational model.…”

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confidence: 99%

16. An Empirical Analysis of Cigarette Addiction

Becker¹,

Grossman²,

Murphy³

2017

Determinants of Health

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AN EMPIRICAL ANALYSIS OF CIGARETTE ADDICTION AZ S TRACTWe use a framework suggested by a model of rational addiction to analyze empirically the demand for cigarettes. The data consist of per capita cigarettes sales (in packs) annually by state for the period 1955 through 1985. The empirical results provide support for the implications of a rational addiction model that cross price effects are negative (consumption in different periods are complements), that long-run price responses exceed short-run responses, and that permanent price effects exceed temporary price effects. A 10 percent permanent increase in the price of cigarettes reduces current consumption by 4 percent in the short run and by 7.5 percent in the long run. In contrast, a 10 percent increase in the price for only one period decreases consumption by only 3 percent.In addition, a one period price increase of 10 percent reduces consumption in the previous period by approximately .7 percent and consumption in the subsequent period by 1.5 percent.These estimates illustrate the importance of the intertemporal linkages in cigarette demand implied by rational addictive behavior.

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“…Yet, most of the models mentioned in the above two paragraphs, in order to reproduce the empirically observable phenomena, employ agents who act rationally and anticipate their preference change. For models of optimal growth under habit formation as by RYDER and HEAL (1973) and BOYER (1978) to make sense, rationality at least on the level of a social planner has to be assumed.…”

Section: Habit Formationmentioning

confidence: 99%

Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences

Jacobs

2016

Review of Economics

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Standard economic theory assumes individual preferences to be fixed and exogenously given. This view has been challenged by numerous empirical observations. In reaction to those challenges, economic theory has been modified, mostly by including additional arguments into individuals' utility functions. Among the approaches that tackle preference change are new consumer theory, habit formation, interdependent and status preferences, social and emotional influences, and reference point-dependent preferences. Hence, while standard economics largely abide by their assumption of stable preferences, an array of alternative approaches is now available to account for changing tastes. Some of these approaches are old and have been discussed in the literature for many decades while others are younger. However, all approaches have in common that they, in some cases surprisingly, have not made it to standard microeconomics textbooks. This survey aims at putting the approaches in perspective. For each of them, empirical evidence as well as methodological issues are discussed.

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A Habit Forming Optimal Growth Model

Cited by 65 publications

References 0 publications

Consumption paths under prospect utility in an optimal growth model

Consumption paths under prospect utility in an optimal growth model

16. An Empirical Analysis of Cigarette Addiction

Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences

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