Identification of Dynamic Models of Rewards Programme

Andrew Ching and Masakazu Ishihara
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Masakazu Ishihara: New York University

The Japanese Economic Review, 2018, vol. 69, issue 3, No 4, 306-323

Abstract: Abstract “Frequent-buyer” rewards programmes are commonly used by companies as a marketing tool to compete for market share. They provide a unique environment for studying consumers’ forward-looking behaviour. The consumer’s problem on accumulating reward points can be formulated as a stationary infinite horizon discrete choice dynamic programming model. We show that the parameters of this model, including the discount factor, are well-identified. In particular, it is possible to identify state-dependent discount factors (i.e. discount factors can vary with the number of reward points). We discuss how this identification result is related to the goal-gradient hypothesis studied in the consumer psychology literature.

Keywords: C11; C35; C61; D91; M31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1111/jere.12188

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