Buy Locally? Big-Box Stores and Time-Inconsistent Preferences

Lindsey Novak

No 235830, 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts from Agricultural and Applied Economics Association

Abstract: The widespread closure of Mom-and-Pop shops, or small, locally owned stores, in the United States and elsewhere is a well-recognized phenomenon. These closures are generally met with dissatisfaction from the local community. These stores, however, often close due to a lack of patronage on the part of the same consumers who are upset by their closure. This behavior and subsequent disappointment are puzzling. I show that this phenomenon can be explained using a hyperbolic discounting, or time-inconsistency, framework. I develop a theoretical model to show that time-inconsistent consumers are less likely to patronize local businesses than time-consistent consumers. The sophistication effect, however, makes consumers more likely to shop at the local store than if they were naive. Further, I show that local stores are more likely to close in a community with a larger proportion of naive time-inconsistent consumers and that these closures cause a loss in welfare.

Keywords: Agricultural and Food Policy; Consumer/Household Economics; Institutional and Behavioral Economics (search for similar items in EconPapers)
Pages: 33
Date: 2016
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea16:235830

DOI: 10.22004/ag.econ.235830

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