Consumption Externalities, Habit Formation and Equilibrium Efficiency*
Jordi Caballe () and
Xavier Raurich ()
Authors registered in the RePEc Author Service: Jaime Alonso-Carrera
Scandinavian Journal of Economics, 2004, vol. 106, issue 2, 231-251
We analyze the welfare properties of the competitive equilibrium in a capital accumulation model where individual preferences are subject to both habit formation and consumption spillovers. Using an additive specification for preferences, according to which the argument in the utility function is a linear combination of present and past values of own consumption and consumption spillovers, we analyze the circumstances under which these spillovers are a source of inefficiency. It is shown that consumption externalities have to interact with habits in order to generate an inefficient dynamic equilibrium. Finally, we characterize optimal tax policies aimed at restoring efficient decentralized paths.
References: Add references at CitEc
Citations: View citations in EconPapers (47) Track citations by RSS feed
Downloads: (external link)
Working Paper: Consumption Externalities, Habit Formation, and Equilibrium Efficiency (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:106:y:2004:i:2:p:231-251
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520
Access Statistics for this article
Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten
More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().