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Showing papers on "Consumption (economics) published in 1988"


Journal ArticleDOI
TL;DR: The authors developed a theory of rational addiction in which rationality means a consistent plan to maximize utility over time, and showed that even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention.
Abstract: We develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Our theory also implies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.

3,281 citations


Journal ArticleDOI
TL;DR: In this paper, the household behavior is modeled as a two-member collectivity taking Pareto-efficient decisions, and the consequences of this assumption are analyzed in a three-good model, in which only total consumption and each member's labor supply are observable.
Abstract: Traditionally, household behavior is derived from the maximization of a unique utility function. In this paper, we propose an alternative approach, in which the household is modeled as a two-member collectivity taking Pareto-efficient decisions. The consequences of this assumption are analyzed in a three-good model, in which only total consumption and each member's labor supply are observable. If the agents are assumed egoistic (i.e., they are only concerned with their own leisure and consumption), it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint. If, alternatively, agents are altruistic, restrictions obtain in the nonparametric context; useful interpretation stems from the comparison with the characterization of aggregate demand for a private-good economy.

1,654 citations


Journal ArticleDOI
TL;DR: In this article, the authors consider an economy where labor is indivisible and agents are identical and show that the discontinuity in labor supply at the individual level disappears as a result of aggregation.

1,240 citations


Journal ArticleDOI
TL;DR: In this paper, an economic analysis of the linkages in fertility rates and capital accumulation across generations is developed considering the determination of fertility and capital consumption in each generation when wage rates and interest rates are parameters to each family and to open economies.
Abstract: An economic analysis of the linkages in fertility rates and capital accumulation across generations is developed considering the determination of fertility and capital accumulation in each generation when wage rates and interest rates are parameters to each family and to open economies. The model is based on the assumption that parents are altruistic toward their children. The utility of parents depends on their own consumption and on the utility of each child and the number of children. By relating the utility of children to their own consumption and to the utility of their children a dynastic utility function was obtained that depends on the consumption and number of descendants in all generations. The term "reformulation" was used because of the emphasis on dynastic utility model of altruism toward children and deriving the budget constraint and utility function of a dynastic family the model was applied to the Great Depression and World War II. The 1st-order conditions to maximize utility imply that fertility in any generation depends positively on the real interest rate and the degree of altruism and negatively on the rate of growth in per capita consumption from 1 generation to the next. Consumption of each descendant depends positively on the net cost of rearing a desdendant. Applying the model it is shown that the analysis is consistent with baby busts during the Depression and the war and with a baby boom after the war. The effects on fertility of child mortality subsidies to (or taxes on) children and social security and other transfer payments to adults were considered. The demand for surviving children rises during the transition to low child mortality but demand for survivors return to its prior level once mortality stabilizes at a low level. Fertility falls in response to declines in international real interest rates and increases in an economys rate of technological progress. Extending the analysis to include life-cycle variations in consumption earnings and utility fertility emerges as a function of expenditures on the subsistence and human capital of children but not of expenditures that simply raise the consumption of children. The path of aggregate consumption in demographic steady states does not depend on interest rates time preference or other determinants of life-cycle variations in consumption.

1,081 citations


Book
01 Jan 1988

716 citations


Journal ArticleDOI
TL;DR: In this article, a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime-separable was investigated empirically using postwar monthly U.S. data on quantities, real wages, and the real return on the one-month Treasury bill.
Abstract: This paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime-separable. The nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked. These cross-relations are examined empirically using postwar monthly U. S. data on quantities, real wages, and the real return on the one-month Treasury bill. The estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models. Several possible explanations of these discrepancies are discussed.

509 citations


Journal ArticleDOI
TL;DR: In this paper, the authors provide evidence that the expected real term structure contains information that can be used to forecast consumption growth and the evidence is strongest for the 1970s and 1980s.

499 citations


Journal ArticleDOI
TL;DR: Poverty can be defined and measured either directly or indirectly (in terms of income) as mentioned in this paper, and the relative deprivation concept of poverty is a direct concept; poverty is understood as visible poverty, that is, a low standard of consumption.
Abstract: Poverty can be defined and measured either directly (in terms of consumption) or indirectly (in terms of income) The relative deprivation concept of poverty is a direct concept; poverty is understood as visible poverty, that is, a low standard of consumption The income poverty line is an indirect measure; poverty is established as low income It is argued that recent mainstream poverty research combines a direct definition and an indirect measure This causes there to be no logical line of deduction between definition and measurement and, along with other problems in the approach, renders the statistics produced invalid

451 citations


Book ChapterDOI
T. Paul Schultz1
TL;DR: In this paper, a small part of the extensive literature on the linkages among education, productivity, and development, and assesses several areas where concerted research might clarify important issues and potentially change policies.
Abstract: Publisher Summary This chapter focuses on schooling, as an investment with market returns is not intended to detract from the importance of education as a public good and as a source of consumption benefits, but rather to review how economic concepts and statistical methods have recently progressed in quantifying the roles of education in economic development. This chapter surveys a small part of the extensive literature on the linkages among education, productivity, and development, and assesses several areas where concerted research might clarify important issues and potentially change policies. This chapter presents an economic interpretation of this educational explosion. Most of the growth in public expenditures on education is attributed to increases in growth of real income per adult. The chapter describes the expansion of the world's educational system both in terms of its inputs of public and private resources and its output of students, and then estimates how income, price, and population constraints appear to govern this process. The chapter presents a contrast on causal frameworks proposed to explain the relationship between education and productivity, and discusses sources of data to measure the relationship and discriminate among causal interpretations. The chapter reviews evidence on the market returns to schooling measured for entrepreneurs and employees, men and women, and migrants and nonmigrants. The chapter also presents the evidence of schooling's effects on nonmarket production. The chapter discusses the policy issues for development that arise from the apparent effects of education on economic productivity and the mechanisms used to finance and manage the educational system.

430 citations


Journal ArticleDOI
TL;DR: In this paper, a closed-form approximation of life cycle consumption subject to uncertain interest rates and earnings is derived by taking a second-order expansion of the Euler equation, and it is shown that precautionary savings against uncertain income can comprise a large fraction of aggregate savings.

428 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that marriage markets will be characterized by positive assortative mating on wealth when spouses differ only in endowments and the gains to marriage result only from public goods.
Abstract: This paper analyzes marriage market equilibria when the gains from marriage result from joint consumption of household public goods. Assuming transferable utility within marriage, the paper proves that marriage markets will be characterized by positive assortative mating on wealth when spouses differ only in endowments and the gains to marriage result only from public goods. When spouses differ in wages and household public goods are produced at home, the results imply offsetting effects, with public good economies creating an incentive for positive assortative mating on wages and gains from specialization creating an incentive for negative assortative mating on wages. The results help explain the persistent lack of empirical support for Becker's prediction of negative assortative mating on wages, and have implications for empirical analysis of all joint living arrangement decisions.

Posted Content
TL;DR: In this article, the authors estimate Euler equations for a number of countries and find that the excess sensitivity of consumption to current income fluctuations is higher in the countries where consumers borrow less.
Abstract: We estimate Euler equations for a number of countries and find that the excess sensitivity of consumption to current income fluctuations is higher in the countries where consumers borrow less. The low level of consumer debt in these countries can be interpreted either as a symptom of tighter credit rationing or as the result of a lower demand for loans. The evidence described in this paper suggests that the former interpretation may be more appropriate and thus supports the view that excess sensitivity may be attributed to liquidity constraints, rather than to other factors.

Journal ArticleDOI
TL;DR: In this paper, a methodological approach to the issue of how risk affects poverty and applies it to household level data for dry areas of rural India is presented, and the following questions are addressed: Under what conditions can one expect an increase in the riskiness of an income or consumption stream to increase poverty? How should one measure the contribution of risk to poverty? And: What long-term benefits in terms of reduced poverty can be expected from policies aimed at stabilising incomes of the poor?
Abstract: Two of the most widely accepted stylised facts about agriculture in South Asia, Sub-Saharan Africa and elsewhere are that income is highly uncertain from one year to another and that deep and widespread poverty exists. And yet there has been very little analysis of the joint problems of poverty and risk. This paper offers a methodological approach to the issue of how risk affects poverty and applies it to household level data for dry areas of rural India. The following questions are addressed: Under what conditions can one expect an increase in the riskiness of an income or consumption stream to increase poverty? How should one measure the contribution of risk to poverty? And: What long-term benefits in terms of reduced poverty can be expected from policies aimed at stabilising incomes of the poor? Such policies have been widely discussed in the Indian subcontinent of late, and their effect on rural

Journal ArticleDOI
TL;DR: In this article, the authors model agglomeration economies endogenously, showing explicitly the origins of the external effects involved, and focus on how variety within the urban service sector is determined, within a market structure of monopolistic competition.

Journal ArticleDOI
TL;DR: For a particular utilitarian social welfare function, the problem faced by a central planner can be broken down into two subproblems: a standard problem o f optimally allocating aggregate consumption over time and a problem of distributing aggregate consumption optimally at each moment among those alive.
Abstract: This paper analyzes aspects of optimal fiscal policy for economies with capital ac cumulation and finitely-lived, heterogeneous agents For a particular utilitarian social welfare function, the problem faced by a central planner can be broken down into two subproblems: a standard problem o f optimally allocating aggregate consumption over time and a problem of distributing aggregate consumption optimally at each moment among those alive If it can use a sufficiently rich set of lump-sum taxes and transfers, the government can replicate the command optimum as a market equilibrium outcome No issue of government debt is needed to achieve this decentralization Copyright 1988 by The Econometric Society

Journal ArticleDOI
TL;DR: The authors used syntactics and structuralism to interpret two popular vehicles of consumption ideology, the television programs "Dallas" and "Dynasty" and found that the primary structure encoded within “Dallas” and “Dynasty” is the binary opposition between secular consumption and sacred consumption.
Abstract: Aspects of syntactics and structuralism are used to interpret two popular vehicles of consumption ideology, the television programs “Dallas” and “Dynasty.” The primary structure encoded within “Dallas” and “Dynasty” is the binary opposition between secular consumption and sacred consumption. The consumer behaviors of characters associated with secular and sacred consumption are described, and processes of mediation and transformation between the sacred and secular consumption poles are illustrated.

Journal ArticleDOI
TL;DR: The relationship between the number of children in a household and the impact on savings needs to be fully explored and tested as mentioned in this paper, and the relationship between demographic factors and savings in developing countries is dependent upon the development of better models and the retrieval of improved data.
Abstract: How important is a high rate of savings to rapid economic growth and how does rapid economic growth affect efforts to raise the rate of savings? These are highly important issues to a debtor company trying to reduce its foreign debt. Study has shown that a higher national savings rate is an important macroeconomic goal in the developing world. Using the models of Japan and the U.S. it is apparent how a higher national rate of savings and investment leads to greater economic growth. Reduced fertility and a slowed population growth have lead to higher rates of saving. Surveys from industrialized countries and both Latin American and Asian countries indicate that when there are fewer children in a household there is less consumption and more savings. However slower population growth may have a reverse effect in other countries. 2 other studies have shown that households with fewer children have higher rates of consumption. This is most likely to occur in countries where there is slow or non-existent economic growth. The relationship between the number of children in a household and the impact on savings needs to be fully explored and tested. In addition the relationship between demographic factors and savings in developing countries is dependent upon the development of better models and the retrieval of improved data. A final conclusion observes that successful family planning can lead to an increase in family savings.

Journal ArticleDOI
TL;DR: Using nonparametric demand analysis, it is found that meat consumption patterns in the United States and Australia can be explained using only relative prices and expenditures, suggesting that specification errors in econometric demand studies can account for findings of taste changes.
Abstract: Health concerns are thought by many to have shifted consumption away from red meats, though econometric evidence is mixed. Testing for structural change is difficult, especially when one time series is used for both estimating demand equations and testing their stability. Specification errors may suggest a shift where none has occurred. Using nonparametric demand analysis, we find that meat consumption patterns in the United States and Australia can be explained using only relative prices and expenditures. Only imposing particular functional forms can reverse the conclusion, suggesting that specification errors in econometric demand studies can account for findings of taste changes.

Journal ArticleDOI
TL;DR: In this paper, it was shown that the actual consumption experience may possess aspects akin to those observed in other abusive behaviors, but may be essentially unrelated to desires for material objects for their intrinsic qualities.
Abstract: This paper presents evidence of a type of consumption which can be called “compulsive.” It further demonstrates that this type of consumption is related to certain aspects of materialism, but not possessiveness. This suggests that the actual consumption experience may possess aspects akin to those observed in other abusive behaviors, but may be essentially unrelated to desires for material objects for their intrinsic qualities.

Journal ArticleDOI
01 Sep 1988
TL;DR: In this article, a method for specifying and measuring poverty defined as relative deprivation is presented, based on the distance between an individual's consumption experience relative to the norm, defined in terms of events and the modal frequency of an event in the community.
Abstract: This paper presents a method for specifying and measuring poverty defined as relative deprivation We base our measure of an individual's poverty on the distance between his/her consumption experience relative to the norm Consumption experience is defined in terms of events and the modal frequency of an event in the community defines the norm Aggregation over events is made to capture the objective as well as subjective nature of deprivation Our measure is related to that proposed by Townsend and econometric estimation is carried out using the Townsend data Income is found to be neither the sole nor the most important indicator of deprivation ANY attempt to measure poverty runs into some familiar questions First is the problem of definition Do we mean by poverty some absolute state of existence at or below subsistence, visible to the naked eye or do we mean a state where some members of a community are relatively worse off? If the former, what determines the shopping list of minimum subsistence needs that must be met which will give us the cut-off point-the poverty line? If the latter, is there any way to avoid sinking into a morass of relativity and end up by defining poor in terms of subjective/ideological/policital criteria? These questions are in some sense perennial and worse, difficult even to pose clearly Notions of subsistence get revised in light of changing

Journal ArticleDOI
TL;DR: In this paper, household economies of scale (arising from the existence of househo ld public goods, increasing returns in household production, and/or bulk discounts) are incorporated into a utility-theoretic model of household demands.
Abstract: Household economies of scale (arising from the existence of househo ld public goods, increasing returns in household production, and/or bulk discounts) are incorporated into a utility-theoretic model of household demands. Individuals are assumed to be identical and symmetrically treated within households. Economies of scale parameters for five goods are estimated using the quadratic expenditu re system and data from the U.S. Consumer Expenditure Survey on expenditures by all-adult households. Results suggest the existence o f significant economies of scale in the consumption of all of the included goods, with economies being especially pronounced in the consumption of shelter. Copyright 1988 by The Econometric Society.

Book ChapterDOI
TL;DR: In this paper, the authors focus on the determinants of the volume of savings, and present the process to add up savings from different sources in the economy, first by aggregating over individuals of different ages and incomes and then over the different sectors (household, corporate, and government).
Abstract: Publisher Summary This chapter focuses on the determinants of the volume of savings. Savings not only allow for growth in income and increases in consumption, but also for the smoothing of consumption in the presence of various uncertainties. Choices by individuals and families about their savings are one set of fundamental determinants of national savings. These decision-makers divide the current increment to their resources between consumption, the satisfaction of current wants, and savings that in turn will influence their ability to satisfy wants in the future. The chapter describes the process that individuals and households decide to save a particular amount. This material is integrated with evidence on the posited relationships. The chapter presents the process to add up savings from different sources in the economy, first by aggregating over individuals of different ages and incomes and then over the different sectors (household, corporate, and government). The chapter also summarizes the role of government policies in influencing the volume of saving, and reviews empirical studies of the determinants of aggregate savings. The chapter also discusses borrowing constraints; health, nutrition and savings; income distribution and aggregate savings; aggregation over cohorts; the role of government; and so on.

ReportDOI
TL;DR: In this paper, the utility cost of following alternative decision rules in the environments specified by tests of the intertemporal allocation of consumption on aggregate data is analyzed, and the authors find that the costs of large deviations from the optimal decision rule are on the order of l cent to $1 per quarter.
Abstract: This paper presents calculations of the utility cost to consumers of following alternative decision rules in the environments specified by tests of the intertemporal allocation of consumption on aggregate data. The alternatives include excess and inadequate sensitivity to income and interest rate changes and ignoring information. The calculations find that the costs of large deviations from the optimal decision rule--consumption equal to current income, for example--are on the order of l cent to $1 per quarter. They are interpreted to suggest that the theory does not make predictions that are robust to small inaccuracies of modeling, including small costs of transactions and information, and that those small costs can account for rejections of the theory as it is applied to aggregate US data.

Posted Content
TL;DR: This paper examined consumer response to tax changes and found that consumption responds to temporary income tax shocks by more than the permanent income hypothesis would suggest, and that some consumers do not adjust consumption in anticipation of tax changes.
Abstract: How changes in current and future income affect consumer spending is a perennial question in macroeconomics and public finance Theoretical constructs such as the permanent income hypothesis are of limited assistance in resolving this issue, because they neglect borrowing constraints and other market imperfections that can significantly affect the marginal propensity to spend out of current income Recent empirical work has also proven inconclusive, since whether consumption responds to income fluctuations by more or less than the permanent income hypothesis predicts turns critically upon whether disposable income follows a random walk or is stationary around a longrun trend (see John Campbell and Angus Deaton, 1987) This controversy is unlikely to be resolved conclusively, because it is notoriously difficult to distinguish a stationary but highly persistent time-series from one that is nonstationary These difficulties suggest the importance of searching for "natural experiments," income shocks with predictable and well-understood effects on future income, to test models of consumer behavior Changes in federal tax and transfer policy during the last two decades provide several episodes of this type' Analyzing the effects of these tax changes is also central to understanding the role of fiscal policy in affecting national saving This paper examines two aspects of consumer response to tax changes Section I argues that consumption responds to temporary income tax shocks by more than the permanent income hypothesis would suggest Results from the 1975 tax rebate in particular suggest that a $1 increase in transitory income raises spending by about 20 cents Section II examines consumption responses to tax announcements Although the results are not conclusive, they suggest that some consumers do not adjust consumption in anticipation of tax changes The final section sketches some implications for analyzing fiscal policy


Posted Content
TL;DR: In this article, the authors consider the effect both on solved out forward looking consumption functions and on Euler equations of two alternative hypotheses about habits: rational habits assume that consumers are aware of the effect of their current consumption decisions on their future marginal rates of substitution; under myopic habits, they are not aware.
Abstract: This paper considers the effect both on solved out forward looking consumption functions and on Euler equations of two alternative hypotheses about habits: rational habits assume that consumers are aware of the effect of their current consumption decisions on their future marginal rates of substitution; under myopic habits, they are not aware. Demand systems evidence suggests there are important habits effects for most consumption goods, but time series models of aggregate consumption have found only a low degree of habit persistence, a result confirmed here by an analysis of quarterly U.S. data based on Euler equations. Taken together the evidence appears to favour the hypothesis of myopic habits.

Journal ArticleDOI
TL;DR: In this paper, the authors present an analysis of the demand for dairy products using the Household Food Consumption Survey (HFS) data, under the assumption of a two-stage budgeting procedure, a complete demand system for food incorporating demographic effects is estimated.
Abstract: This article presents an analysis of the demand for dairy products. First, the structure of dairy product demand is estimated using the Household Food Consumption Survey data. Under the assumption of a two-stage budgeting procedure, a complete demand system for food incorporating demographic effects is estimated. Next, using the demand relations estimated from cross-section data, prediction interval tests utilizing time-series data are performed for milk and butter. Last, factors affecting consumption are classified into economic and demographic effects and a decomposition of the causes of changes in demand over time is performed.

Journal ArticleDOI
01 Mar 1988
TL;DR: This article found that consumer behavior in low-income developing countries is dominated by pervasive liquidity constraints that are exploitable for policy purposes, and that increases in the real rate of return are not likely to elicit substantial increases in savings.
Abstract: Empirical evidence on the deeterminants of private saving in 49 developing countries over the period 1973-83 indicates that, as predicted by theory, a positive relationship exists between the rate of growth of consumption and the expected real interest rate. The strength of that relatioship, how-ever, is such that increases in the real rate of return are not likely to elicit substantial increases in savings, especially in low-income developing countries. It appears that consumer behavior in developing countries is dominated by pervasive liquidity constraints that are exploitable for policy purposes.

Journal ArticleDOI
TL;DR: The authors formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents' consumption sets and using a commodity space that includes employment lotteries, and extract some time series implications from a linear-quadratic approximation to their model evaluated at particular parameter values.

ReportDOI
TL;DR: In this article, an overview of current models of consumption and investment behavior is presented, including the stochastic implications of the permanent income model and empirical tests of these implications are discussed.
Abstract: This paper presents an overview of current models of consumption and investment behavior. First, the stochastic implications of the permanent income model and empirical tests of these implications are discussed. Then the simple theoretical model is extended to include expenditure on consumer durables. In addition, the implications of liquidity constraints and the unpredictability of the rate of return on wealth are discussed. The overview of consumption behavior closes with a critical discussion of the Ricardia Equivalence Theorem. Investment behavior is analyzed using a dynamic optimization model of a firm facing costs of adjustment. This framework integrates the accelerator model, the neoclassical model and the q theory. The model is then used to analyze the interaction of corporate taxes, inflation and investment and also to analyze the effects of uncertainty on investment. The overview of investment concludes with a discussion of inventory investment.