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Welfare Implications of the Interaction between Habits and Consumption Externalities

Jaime Alonso-Carrera (), Jordi Caballe () and Xavier Raurich ()

No 125, Working Papers from Barcelona School of Economics

Abstract: We analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers. Our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an inefficient dynamic equilibrium. In particular, we show that the competitive equilibrium is inefficient when consumption externalities and habit adjusted consumption are not perfect substitutes.

Keywords: Habit formation; consumption externalities (search for similar items in EconPapers)
JEL-codes: D91 O40 (search for similar items in EconPapers)
Date: 2004-04
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Related works:
Journal Article: WELFARE IMPLICATIONS OF THE INTERACTION BETWEEN HABITS AND CONSUMPTION EXTERNALITIES (2006)
Working Paper: Welfare Implications of the Interaction between Habits and Consumption Externalities (2004) Downloads
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