HABIT FORMATION IN CONSUMPTION: A Case Study of Rural India

Puja Guha
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Puja Guha: Delhi School of Economics

Econometrics from University Library of Munich, Germany

Abstract: Dependence of present consumption over the past levels’ was first proposed by Polak (1970). Since then many extensive studies have been done to test the presence of habit-forming effects in food and non-food commodities in the context of many different countries. But no such formal analysis has been done with Indian data. This paper examines the habit-forming effects in the context of rural India – considering rural parts of 4 Indian States Punjab, Gujarat, West Bengal and Tamil Nadu. The demand system used is the flexible AIDS model incorporating demography. It is found that habit effects are significant for all states considered.

Keywords: Myopic Habit Formation; Linear Expenditure System; Almost Ideal Demand System; Likelihood Ratio Test (search for similar items in EconPapers)
JEL-codes: C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2004-12-30
Note: Type of Document - doc; pages: 24
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