Foundations of Intrinsic Habit Formation

Posted: 4 Mar 2008

See all articles by Kareen Rozen

Kareen Rozen

Brown University - Department of Economics

Date Written: March 2009

Abstract

We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. Our axiomatization introduces an intertemporal theory of weaning a decision-maker from her habits using the device of compensation. We clarify differences across specifications of the model, provide measures of habit-forming tendencies, and suggest methods for axiomatizing time-nonseparable preferences.

Keywords: Linear habit formation, Time-nonseparable preferences, Compensation, Weaning, Compensated separability, Gains monotonicity, Endogenously generated auxiliary spaces

JEL Classification: C60, D11, D90

Suggested Citation

Rozen, Kareen, Foundations of Intrinsic Habit Formation (March 2009). Cowles Foundation Discussion Paper No. 1642R; Yale Economics Department Working Paper No. 40R. Available at SSRN: https://ssrn.com/abstract=1102336

Kareen Rozen (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

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