Price search, consumption inequality, and expenditure inequality over the life cycle

Yavuz Arslan and Temel Taskin

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we incorporate a price search decision into a life cycle model and differentiate consumption from expenditure. Consumers with low wealth and bad income shocks search more for cheaper prices and pay less, which makes their consumption higher than in a model without search option. A plausibly calibrated version of our model predicts that the cross-sectional variance of consumption is about 17% smaller than the cross-sectional variance of expenditure throughout the life cycle. Price search has an alternative productive activity role for lower-income people to increase their consumption levels. We discuss other implications of price search over the life cycle as well.

Keywords: Consumption inequality; price search; incomplete markets; life cycle models; partial insurance (search for similar items in EconPapers)
JEL-codes: D10 D91 E21 (search for similar items in EconPapers)
Date: 2011-07-01
New Economics Papers: this item is included in nep-dge and nep-ias
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Related works:
Working Paper: Price search, consumption inequality, and expenditure inequality over the life-cycle (2020)
Working Paper: Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle (2016)
Working Paper: Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:34874

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