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Envy and habits: panel data estimates of interdependent preferences

Francisco Alvarez-Cuadrado (), Jose Maria Casado (), Jose Labeaga and Dhanoos Sutthiphisal ()
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Jose Maria Casado: Banco de España
Dhanoos Sutthiphisal: McGill University

No 1213, Working Papers from Banco de España

Abstract: We estimate the importance of preference interdependence from consumption choices. Our strategy follows the literature that tests the constraints imposed by optimality in the evolution of individual consumption. We derive a Euler equation from a preference specification that allows for non-separabilities across households and across time. The introduction of habits and envy places additional restrictions on the evolution of the optimal consumption path. We use a unique data set that follows a sample of 3,200 households for up to eight consecutive quarters to test these restrictions. Our estimates suggest that, if one defines utility over consumption services, a large fraction of these services is relative, with one-quarter of the weight placed in the consumption of the reference group and more than one-third of the weight placed in the agent’s past consumption

Keywords: Consumption externalities; habit formation; envy; panel data (search for similar items in EconPapers)
JEL-codes: C23 D12 D91 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012-03
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Related works:
Journal Article: Envy and Habits: Panel Data Estimates of Interdependent Preferences (2016) Downloads
Working Paper: Envy and habits: Panel data estimates of interdependent preferences (2012) Downloads
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