Habits and Time Preference

descriptionPublicationkeyboard_double_arrow_right Article 01 Feb 1993Publisher:JSTORJournal:International Economic Review, volume 34, page 61 (issn: 0020-6598,

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Authors: Shi, Shouyong; Epstein, Larry G;

doi: 10.2307/2526950

Habits and Time Preference

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Abstract

Summary: This paper proposes a utility function incorporating both habit formation and an endogenous rate of time preference in a manner consistent with the intuition of Irving Fisher regarding the influence of past consumption on impatience. It is shown that the new specification is tractable and generates new predictions in the context of three model economies: (1) a closed economy with heterogeneous agents, (2) a small open economy with one traded good and one nontraded good, and (3) a small open economy with a traded good and domestic money.

Keywords

endogenous rate of time preference, Consumer behavior, demand theory, habit formation

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