Temptation and Commitment: a Model of Hand-to-Mouth Behavior

Orazio Attanasio, Agnes Kovacs and Patrick Moran

Journal of the European Economic Association, 2024, vol. 22, issue 4, 2025-2073

Abstract: This paper presents a model of consumption behavior that explains the presence of “wealthy hand-to-mouth” consumers using a mechanism that differs from those analyzed previously. We show that a two-asset model with temptation preferences generates a demand for commitment and thus illiquidity, leading to hand-to-mouth behavior even when liquid assets deliver higher returns than illiquid assets. This preference for illiquidity has important implications for consumption behavior and for fiscal stimulus policies. Our model matches the recent empirical evidence that Marginal Propensity to Consume remain high even for large income shocks, suggesting a larger response to targeted fiscal stimulus than previously believed.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvae016 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:jeurec:v:22:y:2024:i:4:p:2025-2073.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press ().