A Model of Comprehensive Habits with Psychological Effects of Work Effort

Trinity College Department of Economics Working Paper No. TEP 10/2004

25 Pages Posted: 11 Mar 2008

See all articles by Constantin Gurdgiev

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

Date Written: 2004

Abstract

This paper develops a neoclassical growth model under the assumption of comprehensive habits that incorporate both consumption and labour supply decisions of the households. We show that in presence of comprehensive habits, households will supply more labour than in case of no habits. In addition we consider two possible psychological links between the wage rate and the habits mechanism. We distinguish between satisfaction effect of work effort and status effect of work effort by creating an explicit positive and negative links between higher wages and the importance of labour supply relative to consumption in determination of comprehensive habits stock. We analyse the different results obtained in the model under this distinction.

Keywords: habits, consumption, labour supply, status

JEL Classification: D11, E21, J22

Suggested Citation

Gurdgiev, Constantin, A Model of Comprehensive Habits with Psychological Effects of Work Effort (2004). Trinity College Department of Economics Working Paper No. TEP 10/2004. Available at SSRN: https://ssrn.com/abstract=1104997 or http://dx.doi.org/10.2139/ssrn.1104997

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

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