Consumption Theory with Reference Dependent Utility

Fredrik W. Andersson ()
Additional contact information
Fredrik W. Andersson: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG

No 226, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: This paper presents a closed form consumption function for an individual when he derives utility from both his current and previous consumption and from the consumption of his relevant others. I show that the traditional definition of an individual's marginal propensity to consume (MPC) is too narrow. With existing knowledge we would call for a broader definition of the MPC that I coin as the individual's total MPC, which also takes into account the consumption change of the relevant others, and this affects that total MPC is smaller than the traditional MPC.

Keywords: Consumption decision; consumption of relevant others; habit- formation behavior; marginal propensity to consume; excess smoothness (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2006-09-22
New Economics Papers: this item is included in nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Journal of Socio-Economics, 2009, pages 415-420.

Downloads: (external link)
http://hdl.handle.net/2077/2718 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:gunwpe:0226

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers in Economics from University of Gothenburg, Department of Economics Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Jessica Oscarsson ().