On the characterization of linear habit formation

Gerelt Tserenjigmid ()

Economic Theory, 2020, vol. 70, issue 1, No 2, 49-93

Abstract: Abstract Habit formation models are widely used in macroeconomics and finance. However, little work has been done to characterize habit formation. In this paper, we provide a simple axiomatic foundation of linear habit formation models that satisfy the Markov (or memoryless) property. We also provide a method to characterize a general class of time-nonseparable but additive models that satisfy the Markov property.

Keywords: Linear habit formation; Axiomatization; Markov property; Cancellation; Invariant Habit Compensation (search for similar items in EconPapers)
JEL-codes: D01 D81 D9 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00199-019-01202-x

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