On the concavity of consumption function under habit formation

Haoyu Liu and Lun Li

Journal of Mathematical Economics, 2023, vol. 106, issue C

Abstract: This paper studies the concavity of the consumption function of a habit-forming consumer with convex absolute risk tolerance. Compared with a model without habit formation, we show the conditions required for concave consumption are weaker if habit parameters are above a certain threshold. Contrary to the results of a standard consumption-saving model with time-separable utility, we show that the consumer’s consumption function can be convex when young and becomes concave when old. These results advance our understanding of the (non-)concavity of consumption function when preferences are not time-separable.

Keywords: Concavity; Consumption function; Habit formation; Absolute risk tolerance (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304406823000228
Full text for ScienceDirect subscribers only

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:eee:mateco:v:106:y:2023:i:c:s0304406823000228

DOI: 10.1016/j.jmateco.2023.102829

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().